Veriteq Corp (OTCMKTS:VTEQ) Chopped in Half
How would you feel if a stock that you own suddenly loses 50% of its value in a matter of a single session? You’d probably be devastated, but apparently, Veriteq Corp (OTCMKTS:VTEQ)’s shareholders around the discussion boards aren’t bothered about it at all.
Their stock incinerated exactly half of its value yesterday and it closed the session at $0.0006 per share, but the excitement coming from various posts around the internet is as strong as ever. The blame is put on short sellers and market makers (who, if forum members are to be believed, are engaged in a myriad of illegal activities) and people are saying that the bounce is imminent. There are also the ‘massive due diligence’ posts that consist of nothing more than a couple of pasted press releases. But why are people so convinced about the company’s bright future?
It’s certainly not because of the latest 10-K. At the end of 2014, VTEQ had:
- $77 thousand in cash
- $186 thousand in current assets
- $7.3 million in current liabilities
- $151 thousand in yearly revenues
- $3.9 million in yearly net loss
The hype isn’t caused by any new press releases, either. The latest PR came out three weeks ago and it announced that some members of the management team have bought a total of 11 million shares on the open market. As we’ll see in a minute, in the grand scheme of things, this means absolutely nothing, but before we do that, we still need to find the reason for the torrent of optimism spurring out of social networks and discussion boards.
It’s a press release from three months ago. It says that Establishment Labs, a Costa Rica-based manufacturer of breast implants and VTEQ‘s only customer, will get an exclusive license for the use of the Q Inside Safety Technology for the breast implant market. According to the press release, Establishment Labs will pay an upfront fee of $1.75 million and if they really like the technology, they’ll have the option to buy it for $10 million.
The same press release said that the deal is supposed to be finalized before May 11 and that’s why some people now reckon that VTEQ‘s balance sheet looks a lot better. But did the company put out a statement officially announcing the closing of the agreement? And did they file an SEC filing about it?
The answers, as is often the case, are just a few clicks away and we suggest that you go and find them.
In the meantime, we’ll touch upon a problem that seems to be largely ignored by the numerous stock supporters around the internet. It’s called dilution and it’s been crippling VTEQ‘s stock for a while.
As we mentioned yesterday, between August 2014 and February 2015, the O/S count grew from a little over 30 million all the way to 1.2 billion. During the same period, the share price dropped from around $0.03 all the way to $0.0002. Then, the management team squished the long-term shareholders and effectuated the fourth reverse split in VTEQ‘s history. Instead of slowing down, however, the printing press started churning out a record-breaking amount of shares. Between February 10 and May 12, the number of issued and outstanding shares grew from just over 1.2 million all the way to more than 388 million. And, chances are, it has been given another boost since then. Yesterday, in a matter of just six and a half hours investors traded more than 920 million shares. The effects on the price are, once again, pretty obvious.
As we also mentioned yesterday, one of the main reasons for the crippling dilution is the tonnes of convertible debt which is being transformed into stock at a discount. The management team have already seen what this can do to VTEQ‘s share price, but curiously enough, they are not in a hurry to stop it. In fact, The Subsequent Events section of the 2014 annual report tells us that between January 31 and April 10, they issued a further $455,875 worth of notes convertible into common stock at discounts ranging from 39% to 43%.
In light of all this, we’re struggling to see how buying 11 million shares on the open market and then bragging about it through a specially dedicated press release will help the stock.
About forty minutes after the opening bell, VTEQ is sitting at $0.0004 – another 33% in the red.
