Rainbow Coral Corp (OTCMKTS:RBCC) is Getting Dangerous
According to the press releases, Rainbow Coral Corp (OTCMKTS:RBCC) is a biotech company that’s traded on the OTC Markets. Unlike most of the penny stocks in this industry, however, RBCC claims to have a “flagship” product. It’s a drug called Naltrexone.
It was originally developed to treat alcohol and opioid dependence, but RBCC said on Thursday that the list of applications is growing rapidly. Thanks to this, the stock shot up on Friday and it managed to gain an impressive 43%, finishing the week just north of the $3 per share mark.
Based on all this, you’re probably thinking that what we have here is one of the few success stories on the OTC Markets. That’s not quite the case.
Once you dig a bit further, you’ll find RBCC‘s choice of words a bit peculiar. They say that Naltrexone is their “flagship drug”, but in reality, they have not been involved in its development at all. The company recently expressed its intent to distribute it in Canada and they’ve been talking about coming up with a delivery system for it, but that just about sums up the company’s involvement with the drug. The word “Naltrexone” itself is absent from the latest 10-K.
And since we mentioned the latest 10-K, we might as well give you a run down of the most important figures found in it:
- cash: $5,180
- current assets: $7,414
- current liabilities: $453,632
- yearly revenues: $128,133
- yearly net loss: $990,233
Naltrexone certainly had nothing to do with it, but RBCC did generate some revenues during the twelve months ended March 31 and you’re probably wondering where they came from. The management team isn’t too keen on telling us explicitly how they’re generating their revenue, but they do say that the company owns and operates a fish store in Venice, Florida, and they also say that the year-over-year sales increase is due to “a remodeling of the front showroom”. Whether the showroom in question belongs to the said fish store and whether RBCC has any operations in the biotech industry as a whole remains unknown.
Things are not looking good, and you might be a bit perplexed by the rather lofty share price at the moment. You shouldn’t be. It can be explained with the 1 for 100 reverse split that the company effectuated at the end of May. This, by the way, brings us on to the biggest problem.
Even if you decide to disregard the questions around the company’s business completely, you have to consider the convertible notes that are starting to weigh down on the stock and its share structure. Unlike the majority of penny stocks out there, RBCC‘s debt can be turned into shares at fixed prices rather than a discount to the market value. The fixed prices range from $0.007 to $0.04 per share and this, it must be said, didn’t sound too unreasonable prior to the reverse split when the ticker was struggling to stay out of the sub-penny levels.
Curiously enough, however, when they effected the reverse split, the management team did absolutely nothing to alter the terms of the convertible notes. As a result, on June 1, when RBCC hovered around $0.51 per share, some lucky note holders received a total of 6,513,344 shares as a conversion of $125,059 worth of debt. In other words, about 86% of RBCC‘s issued and outstanding stock saw the light of day at a rate of just $0.02 per share.
