12 Retech Corp (OTCMKTS:RETC) collapsed massively last month without any clear reason to explain the share price move. The price went from trading close to $2.5 to $0.036 in a matter of days. Have a look at the most recent share price action:
The interesting thing is that the company continued to release news about its operations without mentioning the share price collapse. In this piece, we will try to assess mainly the changes in the amount of shares and the recent acquisitions which were paid with shares.
In the last 10-Q, the following information was given to the market:
“We are a start-up stage company and engaged in the creation of mobile software applications, or “Apps.” Our strategic initiative includes developing and marketing our current mobile application, as well as expanding our mobile application portfolio through the acquisition of third party mobile applications and mobile application development companies.” Source
It is good that the company noted that it is in a start-up stage. The market knows very well that microcap companies, such as this one, are risky bets. Sometimes they can return astonishing returns, but other times their projects don’t work out and the returns are negative.
Most recent announcements
On June 27, 2017, the company announced that all conditions necessary to close the Share Exchange Agreement between Devago, Inc., 12 Hong Kong Limited and the shareholders of 12RT have been satisfied. This is what you need to know from the agreement:
“As per the Share Exchange Agreement, the Company acquired Four Million (4,000,000) shares of 12RT, representing 100% of the issued and outstanding equity of 12RT, from the 12RT shareholders (the “12RT Shares”) and in exchange the Company issued to 12RT an aggregate of Fifty Five Million (55,000,000) shares of Company stock, consisting of: (i) Fifty Million (50,000,000) shares of post forward split Company common stock; and, (ii) Five Million (5,000,000) shares of a to be designated DVGG Series A Preferred Stock. ” Source
In addition, the following conditions were satisfied:
“(i) on June 8, 2017, (1) a change the Company’s’ name from Devago, Inc. to 12 Retech Corporation; and, (2) an increase in the Company’s authorized shares of Common Stock from 100,000,000 to 500,000,000.
(ii) On June 21, 2017, the Financial Industry Regulatory Authority (“FINRA”) approved a six-for-one (6:1) forward split of the Company’s common stock;
(iii) the Company has facilitated the cancellation of 19,800,000 shares of its restricted common stock and such stock shall be returned to the Company’s treasury; and,
(v) 12RT has provided the Company with financial statements prepared by an independent accounting firm registered with the Public Company Accounting Oversight Board (“PCAOB”), such financial statements are included as an Exhibit to this Current Report.” Source
We don’t see any condition in the merger agreement that could have made the share price collapse. Also, we do not see an increase in the amount of shares outstanding, thus the share price collapse does not seem to be caused by stock dilution.
On July 13, 2017, the company released that the company had reached an agreement with a vendor shareholder to return 3,000,000 shares of its common stock to treasury for cancellation. This was a good news. Angelo Ponzetta, CEO of 12 Retech, explained:
“Reducing the total number of common shares outstanding has increased shareholder value and will give us greater flexibility in financing and making potential acquisitions in the future.” Source
On July 21, 2017, the last quarterly earnings were released. The company reported a net loss of $2,801, which was, in our opinion, was widely expected by the market. As we said before, this is an early stage company and losses need to be comprehended in the beginning, as the company is in an initial period of building assets. The market tends to focus on the products being developed more than in the financial figures.
Another share exchange agreement was announced some weeks later:
“100% of 12 Japan Limited, the Japanese incorporated company developing and marketing 12 Retech technologies for the Japan market. As a result of the Agreement, 12 Japan shall become a wholly-owned subsidiary of the Company.” Source
“Pursuant to the Share Exchange Agreement, the Company will acquire 100% of the issued and outstanding equity of 12 Japan in exchange for Five Million (5,000,000) restricted shares of RETC Common Stock; and, (ii) Five Hundred Thousand (500,000) shares of RETC Series A Preferred Stock. The Agreement contains customary representations and warranties. Additionally, the Agreement required that concurrently with closing, the Company facilitate the cancellation of Five Million (5,000,000) of RETC Common Stock currently beneficially owned by the Company’s officers and directors; and the cancellation of Five Hundred Thousand (500,000) of RETC Series A Preferred Stock currently beneficially owned by the Company’s officers and directors. Collectively, such shares shall be cancelled and returned to the Company’s treasury.” Source
Finally, on August 9, 2017, RETC put out a press release, wherein it discussed its “vision for the future of retail and how it is generating revenues from implementing that vision at the flagship store of ITO-YA Japan.” Some information was provided regarding the new 12 Japan’s operating assets. According to the news, it provides licensing revenues from its proprietary technology placed in its flagship Gitoya department store owned by the prestigious retailer ITO-YA of Tokyo Japan. Angelo Ponzetta, 12 Retech CEO, said:
“The current state of brick and mortar retail especially in the United States, could not provide a better background story about why 12 Retech proprietary technology can assist retailers in getting their customers back into their stores. Retailers need to provide experiential entertainment and real attractions in order to draw their customers back into their stores. We all understand that the internet has gained acceptance for many consumers and all else being equal is an easier way for shoppers to purchase the goods and services that they desire each and every day of the year. 12 Retech is about making all else NOT equal again and giving the brick and mortar retailer that advantage of ‘First Choice to Shop’ again.” Source
Conclusion – What may have happened?
Why did the share price collapse? We see two possibilities. First of all, the company has been acquiring businesses outside the United States and using shares of RETC to pay for these acquisitions. Shareholders tend to dislike acquisitions paid with shares. Cash payments are more appreciated since the dilution risk does not exist. Additionally, paying with cash sends a message to the market: “the share price is expensive.” Perhaps, large shareholders decided to sell their stakes in the firm rapidly. That may have caused the share price collapse. Other option is that the share price has been manipulated. Honestly, it is difficult to be sure about it. The company should note if something rare has happened with the stock. Hence, we will be alert on the next announcements made by the company. They may explain the share price movement soon.
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Disclosure: We have no position in RETC and have not been compensated for this article.