Cantabio Pharmaceuticals (CTBO) – Reverse Split – $50 Upside

Current price: $0.0035

Cashout Price: $0.01296

Upside: $50 (for owners of less than 5,000 shares)

Expiration Date: TBD

Information statement

 

This is just a short note as the size of investment ($17) and the expected return does not warrant any longer considerations on this.

Cantabio intends to do 5000:1 reverse split. All fractional shareholders will be cashed out at $0.01296 per existing share (270% above current price). So if all happens as intended $17 investment (on 4,999 share purchase) will be converted to $65.

Management owns 70% of the stock and has already approved the transaction. No further approvals from shareholders are required.

Reverse split is expected to happen 20 days after mailing of information statement and the information statement has not been dated yet.

Cantabio is basically a bankrupt entity, but it has recently raised some cash ($1.5m) from one of the directors and these funds will be partially used to cash out minority shareholders.

A number of these going private reverse splits have gone wrong (cancelled, changed terms, long delays and etc.) so I do not have high hopes for this one either and actually think company is likely to declare default before it manages to go through the reverse split. But for $17 I am willing to play this just for the fun of it.

Reasons for the reverse split

Cantabio does not believe that it could obtain the necessary financing to continue operations without going private. Like many public companies, Cantabio is a going concern that has never generated positive cashflow and will not do so at any point in the near term. Cantabio had envisioned using its status as a public company to attract long-term investors to fund its operations.  Since becoming a public company, Cantabio was not able to conduct a registered offering of its common stock to raise funds.  It did, however, complete private placements of convertible notes and registered the shares of common stock underlying those convertible debentures.

The convertible debentures are convertible at the holder’s election into shares of our common stock at 80% of the pre-money share price of any accumulated equity investment of over $3.5 million.  As our volume is limited (in the 90 days prior to March 12, 2019, Cantabio averaged approximately 104,141 shares a day) and our closing price per share averaged approximately $0.0084in the 90 days prior to March 12, 2019, we do not envision being able to raise over $3.5 million without enacting the reverse stock split. If the holder of the convertible debentures is unable to convert the remaining principal and interest under the debentures prior to maturity, we will have to repay the principal and interest in cash. We do not currently have such cash to hand and will be hard pressed to raise it without first enacting the reverse stock split.

As we did not have sufficient funds to repay the remaining principal and interest under the debentures in cash, we sought other financing that would allow us to not just repay such loans but also to continue operations and advance towards a clinical trial.  We have spoken to potential investors willing to provide such a financing, but they have indicated to us that they would not be able to do so if we were a public company. Although we have not entered into any binding agreements for such a financing, we did undertake a short-term financing with our director, Max Zhu, that allowed us to redeem the convertible debentures (it would have been an event of default if we had gone private with the debentures outstanding) and will cover our estimated costs of going private.  Although we believe that the terms of the loan with Mr. Zhu are at market and were negotiated at arms’ length, they are demanding as we have limited resources and limited access to capital.  Without additional financing, if Mr. Zhu does not convert his loan prior to its maturity on May, 2019, we will be in default under the loan and may need to begin liquidation proceedings. We believe that going private will increase the likelihood of receiving the financing that we need.

11 COMMENTS

  1. nostradamus

    I guess we all missed it, but I was just looking through my account statements and noticed by coincidence this one closed successfully yesterday.

      1. nostradamus

        yeah, sorry, mine as well. i misinterpreted the question

      2. nmeile

        IB response:

        “Our Corporate Action Department has reviewed your inquiry.

        The Depository has not made the payment yet. Once we receive it, shareholders will be paid and the position will be removed.

        There is no estimated date at this time.

        Regards,
        Claudia
        Interactive Brokers Client Services”

  2. Terence

    $65 showed up just as I was wondering about the delay. So it took one month and a few days after closing for the company to send the cash.

    Thanks for posting this idea – allows for a nice dinner!

    This deal reminds me of UITA, a very similar cost/payoff trade 3 years ago, but with the opposite result. I just checked – that deal was canceled a year and 3 months after the reverse split was filed! I will post under that deal’s write up.

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