Auspex · @AuspexResearch
17th Nov 2016 from TwitLonger
My longest TwitLonger to date: When A + B = D
A+B = D
Do you ever feel like the game has been rigged against you? You are buying for the bounce that everyone on social media or in a chat room keeps talking about, but it never comes. Or, even worse, a small bounce comes, you buy into it, and find yourself underwater a few hours later asking "how could this have happened to me?!" Hiding in plain sight is a concept that anchors the theme of so many of my Tweets ... and explains exactly why your bounce never materializes. More importantly, it dictates why any meaningful bounce that does occur cannot be sustained. To be quite frank with you, I have been amazed by how many microcap traders do not seem to understand what I am about to show you. I have been torn as to whether or not to even expand on the subject since doing so will simply take away this advantage once everyone understands it and is able to apply it. Thanks to Michail Shadkin, who recently showered my with undeserving praise (https://twitter.com/EpicaCapital/status/797841094306369538), and an unexpected Black Swan short squeeze in Dryships, Inc., I have finally been motivated to pen this article.
A few days ago, I received several calls from people telling me to look into DRYS. I didn't even bother opening a page to read news or look at a single SEC filing. They pestered some more, stating that the reverse splits were right up my alley. Again, I ignored them. More and more contact was made with me as Shorty began to get squeezed, as they reminded me that this was a company that could be headed toward bankruptcy and the only reason that it was running was due to the low float created by reverse splits. I finally asked a couple of guys, 'why should I care that this thing did a reverse split?' ... to which several people answered, 'but you love reverse split runners, don't you?' Then, I realized the danger of not explaining this subject to anyone out there who might be following me and thinking that it is safe to short something that runs 'just because it had a reverse split.'
I realize that explaining this will only make locates harder and more expensive for these things. I find solace in the idea that perhaps after reading this enough of you will become shepherds who scream at the remaining sheep to stop charging over the cliff whenever you see the following happening. Then, and only then, can you stop the fleecing that occurs. This will make more sense in a few minutes, I promise!
I hope that you enjoy what unfolds in this article. This is yet another tool that you can place in your Fundamental Analysis weapons cache, and as you will see it is just another example of why we laugh at people who say things like "I don't trade the company, I trade the tape."
As is the case with most everything, there is an underlying set of rules and mathematical formulas that dictate the world around you. These rules and calculations are present in your microcap world, too, and they can be applied to certain companies to explain the simple price action you see on the surface. In fact, these rules and math can be used to predict and explain press releases, SEC filings, conference calls, investor relations campaigns, etc. "What did he just say?" Yep, you can use this stuff to predict press releases and SEC filings. And you thought this game was about predicting only price movements! Yes, that was a pointed jab at the "I trade the tape" crowd. Now, imagine the advantage if you know what press release and/or SEC filing is coming and why it is coming before the rest of the world even reads it and figures out whether or not they will make it the hump du jour. Almost makes it feel unfair, doesn't it? Hey, I asked you in the first sentence if you ever felt like sometimes the game was rigged against you. Don't shoot the messenger! Get mad at the idiots in the chat rooms and on social media who are trying to CONvince you to buy this stuff! After all, they are the so-called Gurus ... the experts to whom thousands of traders pay money each month for their sage advice. If they do not understand the following, then they are no Guru, and not worth your money. If they do understand the following, then they are something far worse - crooks - because they are knowingly deceiving you. Either way, I suggest you put down the subscription service and step away slowly. I promise you will be better for it in the long run.
I know. Stop preaching and get to the good stuff.
You may have heard me talk about wrapping your hands around your subject to the point that you understand the governing dynamics of its system. It is only then that you can know your opponent's every move before he makes it. Some say that trading is a game of chance. In response to that notion, I lean on Louis Pasteur, who said, "In the fields of observation, chance favors only the prepared mind." So, let's prepare your mind.
What do I mean when I say that A + B = D?
Let me introduce a new form of Fundamental Analysis to many of you. This is where we will marry math with rules. I have shown you lots of math in the past, now I am hoping to show you something that will broaden your horizons, especially the newer guys out there. For this exercise, we will use GBSN's storyline and financial data.
GBSN, Great Basin Scientific, is a ticker that you have heard me talk about for quite some time. So much, in fact, that people accused me of beating a dead horse. "We know it's a POS!" was the typical response, and that is fine and dandy that everyone seems to know that. After all, it doesn't take a genius to figure out that part. However, not many people ever stopped to think about what it was, exactly, that caused the stock price to go from a split adjusted price of $15,000 to just 2 cents in a year.
Maybe you do know. What caused it? What really caused it?
"Cash burn was too high"
"COGS was greater than revenue"
"Product was never really adopted by the end-user"
All of that contributed, sure. All of that is part of the Fundamental Analysis, true. But, did you know that there is a set of rules that dictated that they print more shares and dump them on the public? In the end, when broken down to its most pure form, selling is what causes prices to fall.
"Sure, they did crappy financing with crappy financiers. We all know this."
I know you know this. Here is the part you might not know.
How many of you have ever read the NASD Rule Book? For that matter, how many of you have ever opened the NASD Rule Book? Not many. Let's learn something new.
Here is the NASD Rule Book in all of its glory:
http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?selectednode=chp_1_1_4_3&manual=%2Fnasdaq%2Fmain%2Fnasdaq-equityrules%2F
Before moving forward, let me ask you 'what is the one rule in the NASD Rule Book that you do know?'
"That a stock has to have a $1 bid price or they get delisted."
Did you really just say that? Probably.
If you did know that, great.
What rule in the Rule Book says so?
Rule 5550(a)2:
Minimum bid price of at least $1 per share;
If you just figured out that this is the A in my equation, then kudos to you. If you are already proficient in 5550, then go back to watching TV. I have wasted enough of your time tonight.
Still here? Great.
That's the easy part. That's the part everyone should know. Unfortunately, that is where 99% of the people I meet stop. In fact, most of them never even get the information from the Rule Book. They get it from reading some text put out by the company ... and you know how I feel about getting your information from a press release. If you have not already done so, scroll down to Rule 5550 in the Rule Book. This is the Rule that outlines what it takes to remain on the NASDAQ exchange and not get booted down to the gutter that is the OTC or Pinks.
Rule 5550: Continued Listing of Primary Equity Securities
A Company that has its Primary Equity Security listed on the Capital Market must continue to meet all of the requirements set forth in Rule 5550(a) and at least one of the Standards set forth in Rule 5550(b). Failure to meet any of the continued listing requirements will be processed in accordance with the provisions set forth in the Rule 5800 Series.
Now, this is where the engineer in me comes out. It is the part I like so much. This is the rule that defines the boundary of the ecosystem. This is where you get your hands around your target and work your way in ... like a boa constrictor.
I see that GBSN must satisfy ALL of the requirements in 5550(a) and 1 of the requirements in 5550(b). In the microcap market, this tandem of sub rules is one of the best tools you can use ... and this is why I was surprised to learn how many people did not fully understand it ... because it applies ONLY to these microcap stocks.
Let's figure out exactly why.
Going through the minimums under 5550(a):
1. At least two registered and active Market Makers, one of which may be a Market Maker entering a stabilizing bid;
You never need to worry about that one. They will always have 2 active Market Makers. Moving along. (Yes, I am intentionally skipping 2)
3. At least 300 Public Holders
You never need to worry about this one, either. There will always be 300 holders. Moving along.
4. At least 500,000 Publicly Held Shares
Don't worry about this one. There will almost always be 500k shares in public hands, and if there are not, there soon will be.
5. Market Value of Publicly Held Shares of at least $1 million.
Don't have to worry about that one. The market cap will almost always be over $1 million.
What did we miss? Oh, right. #2
2. Minimum bid price of at least $1 per share
Now, this one I could see being a problem for an issuer, because I have seen plenty of stocks that trade under $1. So, I write this one down on the white board. "CONSTRAINT 1: $1 MINIMUM BID"
Moving along to 5550(b). Reminder - They must satisfy at least 1 of these:
1. Equity Standard: Stockholders' equity of at least $2.5 million
Writing that down on the white board. This is a possible constraint, an edge of the envelope.
2. Market Value of Listed Securities Standard: Market Value of Listed Securities of at least $35 million
Write this one down on the white board. It is the MVLS (you may have seen me reference this on various tweets), and the minimum is $35,000,000. We have yet another edge to our operational envelope.
Are you writing this stuff down? No, seriously. Write it down. It will make it easier.
3. Net Income Standard: Net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years.
Write this one down, too. One way that they can qualify is if they have $500,000 of Net Income. OK. Great. We have now defined our boundaries. Now, let's start to squeeze inward.
Before moving forward, let me recap what your white board should look like at this point:
CONSTRAINTS:
$1 BID
and 1 of the following:
$2.5 million in Shareholder Equity
$35 million in MVLS
$500k in Net Income
At this point, a light bulb should be going for some of you who are new to this angle. If it remains unclear, do not worry. This is where I show you how to merge SEC filings with NASD Rules.
I could race through this stuff here and just hit the important parts, but in my typical fashion I will get long-winded in an attempt to give enough insight that the newer people here can fully grasp the concept. A lot of stuff I have read over the years I feel tends to assume the reader knows more than he/she does, and in a static relationship such as this the moment is lost if the information is not properly conveyed. So, bear with me. My intentions are not to bore you to death, I promise.
First step is to load up this 10-Q filing from spring 2016 and pretend that we are at that point in time:
http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=11379957
We will now use the data from this filing as it relates to the delisting notice that GBSN received in October 2015: http://www.businesswire.com/news/home/20151020006761/en/Great-Basin-Announces-Receipt-NASDAQ-Notice-Non-Compliance
As you read that PR, it is worth pointing out that they go to lengths to expand upon the $1 minimum bid requirement, but do not say much about how they will address the other deficiencies. Standard operating procedure like this is probably why everyone tends to focus on "they have to maintain $1" instead of figuring out the entire picture.
Back to the filing and our white board.
Let's focus on figuring out 5550(b)1:
1. Shareholder Equity Standard
What is GBSN's Shareholder Equity position as of March 31, 2016? Do you know how to calculate Shareholder Equity?
Right now, some of you are saying "I don't even see Shareholder Equity on this stupid thing". When a company's liabilities exceed its assets, then this shareholder equity becomes a shareholder (or stockholder) deficit. Said another way, if the company's accumulated deficit (total losses) exceeds its additional paid in capital, then there is no shareholder equity ... rather, there is a shareholder (stockholder) deficit.
Make sense?
Now, I warned you that I would get a little long-winded with this one. So, let me waste a little bit of your time at this point to make sure everyone knows how to quickly find something in an enormous document. Press CTRL + F while you are in the SEC filing window. That will "Find" whatever text you tell it to find. Enter "deficit". This will now highlight every instance of the word "deficit" in this document. You are looking for the "Total stockholders' deficit" that is found at the bottom of the balance sheet on page 3.
I cannot insert images into TwitLonger, so ... so, I need a blog or something ... so, we are going to have to do this manually. Might be better practice that way.
Total stockholders' deficit = (43,404,389). The parentheses indicates a negative value, in case you are wondering.
"It says that the stockholder deficit (which already implies negative) is negative, so does that mean it's actually positive?!"
No, that is not a double negative that makes a positive. If there were no parentheses around the value, then the term would say Total Stockholder Equity.
Beating a dead horse, let's learn how to check our math here.
Stockholder equity can be derived by subtracting your total liabilities from your total assets:
Total Assets = $27,592,473
- Total Liabilities = $70,996,862
----------------------------------------
Shareholder Deficit = -$43,404,389
Stockholder Equity can be derived by subtracting the Accumulated Deficit from the Additional Paid-In Capital:
Additional Paid-In Capital = $112,151,579
Accumulated Deficit = $155,556,371
------------------------------------------------------
Shareholder Deficit = -$43,404,389
(Note you need to add in the few hundred bucks of Pref and Common par value to get the exact match. I skipped this for easier understanding)
Still with me?
Now that we know how to calculate that figure, we can take the figure and apply it to what we know from the NASD Rule Book. Go to your white board and write down the figure next to the Constraint that says "$2.5 million in Shareholder Equity".
It should look like this:
$2.5 million in Shareholder Equity? Actual value = -$43,404,389
How much are they short of the minimum? Approximately $46 million. (43.4 to get back to zero + 2.5)
Next step is to ask yourself "do they have a snowball's chance in hell of qualifying under NASD Rule 5550(b)1? NO
Before moving along, though, let's think some more. How COULD they satisfy this minimum requirement? What is SE (shareholder equity)? It is total assets minus total liabilities. This means that they would need to increase their asset base by 46 million dollars, or decrease their liabilities by 46 million dollars without affecting anything else. Almost impossible. But, it could be done, right? How could they grow their assets? Cash is an asset, right? They could issue stock and raise $50 or $60 or $70 million dollars, right? Sure ... if they could find someone willing to give them that much. Hold that thought for a while.
Moving along.
Let's skip 5550(b)2 and go to 5550(b)3. I'm only skipping for teaching effect here. There is no other reason to skip 2 and go directly to 3.
3. Net Income Standard (They need $500k in the most recent fiscal year)
Since we need to look at the most recent fiscal year, we need to switch from the current 10-Q filing, which is the most recent Quarter, to the 10-K filing, which is the most recent year:
http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=11227605
This time, we are going to "FIND" a term in this document called "Net Loss". Just like SE, "Net Income" has an opposite term when the value is negative, and the opposite of "Net Income" is "Net Loss". That is why you are searching for that term.
Searching for the term "net loss" brings you to several disclosures throughout the 10-K filing where the company addresses their net loss. All of the mentions involve the same core figure, which can be found on page F-4. That is the Income Statement, or the Statement of Operations.
What is the value you see? More parentheses. Negative value. Net Loss.
(57,899,169)
That means they lost about $58 million this past year. Compare that figure to the Constraint on your white board:
$500k in Net Income? Actual Value = (57,899,169)
How much are they short? Approximately $58 million.
Do they have a snowball's chance in hell of satisfying this requirement? NO
The boa constrictor tightens the grip as we continue to work inwards from the boundaries.
Time to move on, right? Not a chance. This is long-winded, remember? Let's take a look at how the 10-K and the 10-Q we have open merge to create new figures.
We know that the Net Loss on the 10-K is (57,899,169). Let's go check out the accumulated deficit. If you FIND "accumulated deficit" and click down to the 4th instance, then you should be on the balance sheet of the 10-K (page F-3). The Accumulated Deficit as of December 31, 2015 was (121,903,865).
Now, flip back to the 10-Q we have open and notice that this is a statement as of March 31, 2016 - 1 Quarter later than the 10-K (aka - the next reporting period). What is the Net Loss shown on the 10-Q? (33,652,506).
Why am I showing you this? I am simply giving long-winded practice to guys who do not already know how to do this. That's all.
What did we learn earlier about SE?
Right. It can be calculated by subtracting Accumulated Deficit from Additional Paid-In Capital (and the par value, which is miniscule). And what is Accumulated Deficit? If you were paying attention from above, then you remember that it is cumulative losses.
So, plug in the values. Take the Accumulated Deficit of (121,903,865) from the 10-K (December 31, 2015) and add the Net Loss from the 10-Q (March 31, 2016), which was (33,652,506). Remember, you are adding a negative number here, so you can just add the absolute value of each and throw a negative sign on it for easy calculation.
121,903,865 + 33,652,506 = what? 155,556,371 ... with a negative sign ... (155,556,371).
Where did you just see that figure?
Right. It is the Accumulated Deficit found in the 10-Q.
Why is that important? Because if you know how all of these figures work in concert with one another, then you can begin to predict what will have to happen in the future in order for certain metrics to be met. In other words, you can perform effective Fundamental Analysis. Use the projected net loss to calculate what the required dilution will need to be when these companies are shooting for the SE qualification. (Yes, this is what I was talking about recently re: RGSE).
Water break to wash it down so far? This is a lot to digest if this is uncharted territory for you. Take a few moments to go over it again and make sure it makes sense so far. I am doing the same thing ... but I'm having a beer. I am allowed a beer because I already know this. Yep, looks OK to me. I think you should be able to follow all of that.
Back to our white board.
We skipped over 5550(b)2 because I already knew that 5550(b)3 was an impossibility in this case, and I wanted to get the 2 impossibilities paired together in the explanation process. With those 2 out of the way, we can go back to the one we missed!
5550(b)2:
Market Value of Listed Securities Standard (they need $35 million minimum)
Back in spring of 2016 (the time of this 10-Q), GBSN stock sat around the $3 level if memory serves me correctly. So, let's just use $3 as it will serve for easy math.
What was the MVLS (Market Value of Listed Securities) at that time? How do you calculate that? It is simply the market capitalization, a figure that can be easily determined by multiplying the number of outstanding shares by the current market price. Hopefully, 100% of you know how to find the number of shares outstanding - it is on page 1 of the 10-Q filing: " The issuer had 3,942,843 shares of common stock outstanding as of May 11, 2016."
Let's round that up to an even 4 million for easy math.
MVLS = 4 million * $3 = approximately $12,000,000.
How much are they short? Required is $35M and Actual is $12M. The difference is 35-12 = 23M. They are short $23 million worth of market value.
This is where the light bulb should get very bright for some of you. You just realized what it's all about, didn't you? No? Do not worry, I have a little energy left to explain. Ah, whom am I kidding? This is where it gets real fun!
A + B = D
Let's start to fill in our variables.
Since we have shown beyond a reasonable doubt that there is no way GBSN can satisfy 5550(b)1 or 5550(b)3, all that is left for them is 5550(b)2. Therefore:
A = $1 minimum
B = $35M MVLS
D = ?
We have defined their ecosystem. We are standing above, predicting how they will live in this little economic biosphere we are watching. And "they" refers to everyone, the company, the financiers, the traders ... everyone.
This is governing dynamics. Welcome, if you made it this far. We have been waiting for you.
What can now be said about what MUST happen? What do the rules dictate? MVLS is a function of price and shares. Therefore:
1. Someone must promote the stock to get the price to 35M/4M = $8.50 to become compliant.
2. The company must print 8M shares (35M/$3 current price = approximately 12M shares are needed - 4M currently outstanding = 8M required) to become compliant.
Digest that for a moment.
Now, we are going to merge the Rules and the Boundaries to predict what happens next. What do you think will happen? Financing and dilution. Right. They have no choice.
So, moving from the October PR from earlier: : http://www.businesswire.com/news/home/20151020006761/en/Great-Basin-Announces-Receipt-NASDAQ-Notice-Non-Compliance
Fast forward to December 2015:
http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=11082007
This document is now 4,000 words long, so I am not going to get into tearing apart an 8-K financing. Sorry. You are going to get the highlight.
This is the important part. Find the boundaries, the terms. Look on page 4:
"The price at which the Company will convert the installment amounts is equal to the lowest of (i) the then prevailing conversion price, (ii) initially 80% of the arithmetic average and (ii) after nine months from closing, 85% of the arithmetic average, in each case of the lower of (i) the three lowest daily weighted average prices of the Common Stock during the twenty (20) consecutive trading day period ending on the trading day immediately preceding the Installment Date and (iii) the weighted average price of the Common Stock on the trading day immediately preceding the Installment Date, subject in all cases to a floor price of $0.20."
Light bulb. I could get extremely long-winded here, but I will not. Hopefully, what I explain next will be enough.
Now, you break out your spreadsheet.
These guys are not going to be able to convert all of the stock at one whack. So, build your spreadsheet and look at the volume of the stock. This is one way I use Technical Analysis ... as you can see, it has little to do with MAs, MACD, OBV, etc. The liquidity (the volume) tells you what is possible in their world.
Play this out with me.
There are 4 million shares outstanding (O/S) and the financiers are giving themselves a 20% cushion because they are doing the same Fundamental Analysis we did, and they realize this company probably has no way of paying them back with future cash flow. Therefore, they will get paid in stock ... at a discount ... which they cannot use to buy groceries ... so they sell it ... for cash ... which can be used at the grocery store to buy groceries. You can also use cash to make it rain the club, or whatever. I tend to focus on food and alcohol in my old age. Pro Tip: The sooner in life you focus on these things, the better off you will be in the long run. IE - stop wasting money on yellow cars that get 8MPG. Thanks, Dad. Can we get back to the spreadsheet?
(In the following, I am using all easy math here - not reality - that would take far too long to explain)
4M shares O/S and the stock is trading at $3.
Lets say they print up 1M shares for the financiers. The discount is 60 cents (20% of $3), which means they are getting stock at around $2.40. All of a sudden, someone in a chat room with a few thousand followers says "This thing has legs!" or some other idiotic comment based on nothing more than that person might have been slipped a $20 under the table for the comment. Chat rats start to buy, and the financiers sell stock. We have all seen this play out. Where does the stock price tend to go? To the point where the stock was printed. As I type this, in fact, DRYS just announced their little financing package and the stock went promptly from $110s to where? The financing point of $10-20 something.
So, keep playing this out and fill in your spreadsheet.
There are now 5M shares O/S (4M original + 1M newly printed) ... but the price is now $2.40. What is the resulting MVLS? 5M * $2.4 = $12M.
Wait a second. They didn't accomplish anything. The MVLS was $12M before they did this!
What do they do? They print 2M shares at a 20% discount (2.4 * .8) = about $1.90
Chat leader says buy for the bounce!
Stock promptly gets dumped in your face.
Stock settles around $2 if you are lucky.
Resulting MVLS? Now there are 7M shares O/S and a price of $2 = $14M.
Great news, they are $2M closer to the required $35M ... but still $21M shy. What do they do?
Print more stock. This time they get aggressive and print 5M shares around $1.50. Result?
12M shares O/S @ a price of $1.50. What's the resulting MVLS? 12 * 1.5 = 18M. Still 17M short.
What do they do next? Right. Get aggressive and print 10M shares at 1.20 area.
Chat leader and social media idiots say "this could bounce!" It doesn't. Result?
22M O/S with a current market price of $1.20 = 22 * 1.2 = approximately $25 million.
Aha! They are getting there! A little more printing and they will satisfy Rule 5550(b)2. We are almost out of the woods! Hooray.
Some of you already realize what is happening. If you do not, then play it out one more step. The current share price is $1.20 and the financiers get a 20% discount. I'll wait ....
Right.
1.20 * .8 = 96 cents.
They just fell out of compliance with Rule 5550(a).
Result? Reverse split in December 2015.
Process starts over.
Result? Reverse Split in March 2016.
Result?
Well, after 2 reverse split, you have to figure they would begin to realize that doing the same thing over and over and expecting a different result is the definition of insanity. A modification would be needed this go-round. So, if you have tried multiple times to meet 5550(b) through the MVLS Standard and failed, what else could they do? I told you earlier to hold a thought. Remember now, they cannot boost revenue to qualify under the Net Income Standard. So, what is left? Shareholder Equity Standard.
"Before moving along, though, let's think some more. HOW could they satisfy this minimum requirement? What is SE (shareholder equity)? It is total assets minus total liabilities. This means that they would need to increase their asset base by 46 million dollars, or decrease their liabilities by 46 million dollars without affecting anything else. Almost impossible. But, it could be done, right? How could they grow their assets? Cash is an asset, right? They could issue stock and raise $50 or $60 or $70 million dollars, right? Sure ... if they could find someone willing to give them that much. Hold that thought for a while."
Knowing that back in October 2015, were you surprised at all to see this news hit in June 2016?
http://finance.yahoo.com/news/great-basin-secures-75-million-210000221.html
This is what they came up with after paying that firm $50,000 a month to consult them. Do you see why I laughed at the time?
This was nothing more than an attempt to regain compliance through 5550(b)1. However, it shouldn't have taken you long to figure out that this was simply a smoke and mirrors game. How could you tell? Go to the SEC filing and look for the terms, same as last time:
https://biz.yahoo.com/e/160706/gbsn8-k.html
"Item 3.02 Unregistered Sales of Equity Securities.
As described in Item 1.01 of this report, which is hereby incorporated by reference, on July 1, 2016, the Company issued $75 million of Notes which are convertible into the Company's shares of common stock at an initial conversion price of $2.00, subject to adjustments as contained therein.
The 15 monthly installment payments under the Notes may also be settled at the Company's election in shares of common stock of the Company ("Common Stock"). The price at which the Company will convert the installment amounts is equal to the lowest of (i) the then prevailing conversion price, (ii) 80% of the arithmetic average of the lower of (i) the three lowest daily weighted average prices of the common stock during the twenty (20) consecutive trading day period ending on the trading day immediately preceding the Installment Date and (iii) the weighted average price of the common stock on the trading day immediately preceding the Installment Date, subject in all cases to a floor price of $1.00."
Do you see what they did there? Exact same thing as the previous failed attempts, only this time they wrote the $1 floor (same as 5550(a) $1 min bid requirement) into the financing. So, instead of just taking them out of compliance with Rule 5550(a), going below $1 after all of the 80% discounts would terminate their ability to get any more money from the financing arrangement. Again, go to your volume to see if you think these guys could dump $46 million worth of stock (what we calculated earlier that they were short of the SE Standard) with continuous 20% discounts onto chat rooms before the price went sub 1 again.
The result?
Same as before. The stock went sub $1 as the MVLS never achieved the $35M minimum requirement. The deadline was hit, and the stock was delisted. This is why I said at the time, "only you have the power to make it stop. Just stop buying."
A + B = D
A = Rule 5550(a) = $1 minimum bid
B = Rule 5550(b) = $35M MVLS
D = Delisting
Thus, we have shown through our work that every move this company made from October 2014 on could have been predicted - The PRs, the SEC filings, the market reaction. It was all required by law to happen just as it did. Every "bounce" buyer was pre-destined to lose, and lose quickly.
Congratulations if you made it this far. I hope you enjoyed the process.
Before I go, I would ask you to take a moment to reflect on some things that are related to this topic. This is from my Pinned Tweet (http://www.twitlonger.com/show/n_1sn0tff)
"Through detailed research, I will ensure to the best of my ability that the positions I take are against companies that can do me the least amount of harm in the long run. Think of this as Fundamental Analysis. Almost all of my trades are anchored in sound, fundamental analysis. This is a topic that I could expand upon far longer than you care to read. So, I won't. Not yet, anyway"
Today, I expanded on this topic for far longer than you cared to read. I told you I would.
Now, as you reflect on that thought, go back through my old tweets and apply what you know now to many of my targets over the years.
Are you starting to see why many of these targets can do me the least amount of harm in the long run?
If you are feeling excited that you learned something valuable here today, allow me to rain on your parade a little bit.
The times they are always a changing! What worked for years might suddenly derail tomorrow. That is the nature of a system that is chaotic at the core. Such is the vulnerability that is exposed when one side knows what the other side is doing. That vulnerability applies to many things. Consider it.
The other point of reflection that I would like to suggest has to do with chat rooms and social media and another point I made in my Pinned Tweet:
"let me begin by saying that you should trust no one in this game, that you should listen to no one but yourself, and that you should always do your own work - and do it well; in short (no pun intended), do not follow anyone."
If you are paying money to someone to guide you and that person has ever suggested buying a stock to which these governing dynamics apply, then I highly suggest you reflect upon that decision. Because there exists only 1 of 2 possible scenarios in that situation:
1. The person is not well-versed in understanding the dynamics of the market in which you are operating, in which case you would be silly to be paying such a person for any kind of guidance.
2. The person is on the scam. That is infinitely worse. In this case, you are literally paying them to feed you horrible ideas. The shepherds who lead their flocks off the cliff - in the long run, of course. Let me assure you that if they were making great money strictly from unadulterated trading, then they would not be sitting in a chat room asking you for $50 each month. Chances are higher that your presence is a prerequisite for their success.
I know, everyone in microcap land is a degenerate gambler looking to buy DRYS at 5 and sell at 110 to The Greater Fool before the NASD halts the charade. I am neither naive nor arrogant enough to think that I could ever change that. But, maybe a few of you, newly equipped, will call out shills when you see them acting in such a Foolish manner. Eventually, the Individuals become The Crowd .. and the times continue to change.
;)
And with that, I will close with the opening line from my Pinned Tweet:
"Who's the more Foolish, The Fool or The Fool who follows him?"