In July 2016, we published this piece, highlighting a potential short play in Tauriga Sciences Inc (OTCMKTS:TAUG). At the time, the company was trading for $0.007 a share and a market cap just shy of $10 million. Our thesis derived from the failure of a reverse merger and the actions and outcomes subsequent to the failure revealing (by way of an investigation carried out by one of the parties involved) that not all was as it seems at Tauriga.
Right now, the company trades for $0.0017. That’s a close to 80% decline and a real short-side win for our readers.
At the time of our highlighting the opportunity, we suggested a target of zero. The reason we are coming back to this one today is that, for the more risk-averse traders, it may be worth rethinking this target and pulling profits off the table.
The situation that underpins our short thesis was as follows:
The company was going to enact a reverse merger with another company called Decision Diagnostics Corp (OTCMKTS:DECN) during the middle of last year, with the goal of the merger being to subsequently up-list the combined entity to a major exchange. At due diligence phase, however, the guy driving the merger from Decision’s side, Keith Berman, stated that he discovered that Tauriga was nothing more than a shell with one operational focus: the then ongoing (and still ongoing) litigation against an accounting firm called Cowan Gunteski, which it alleges mishandled some accounting for it and that, further, this mishandling caused a delisting.
Not only this, but that the projected payout from this litigation in the event of an outcome favorable to Tauriga was far lower than the $4 million the company was suggesting as part of its communication with shareholders (this has now risen to $4.5 million in press releases), coming in somewhere around $250,000 as determined by a team of lawyers Berman tasked with investigating the case.
As we have said, the litigation remains pending, and its outcome is anybody’s guess. There are valid arguments on both sides of the equation, making it difficult to form any sort of solid thesis as to how the situation will resolve, and what it will mean for shareholders (and particularly as relates to capital structure, there may be some serious dilution associated with resolution).
It is in this uncertainty, however, that we are basing our suggestion that traders with a short exposure may want to pull profits off the table. It seems the case is nearing resolution, and there is a good chance we are going to see an uptick on any news related to it – however it plays out.
The whole thing has been a drain on company (and shareholder) time and money and we think that markets will be glad to see it wrapped up and boxed off. So long as the outcome doesn’t kill off Tauriga altogether, which is unlikely, we think there is probably enough in the pipeline (there is a cosmetics-type cream launch pending in the US) to attract some news driven volume and push the company up to regain some of its lost valuation.
Management continues to pump out press releases and – on a stock as thinly traded as this – the right release at the right time (whatever it relates to) could spark a squeeze. Holding short heading into trial resolution, and against a backdrop of operational advance (at least, that is, as implied by management communication) is an exposure to said squeeze and, for us, isn’t justifiable from a risk reward perspective.
80% is a nice take. It might be time to move on.
Readers looking to catch up on the entire story can do so by checking out our previous coverage of TAUG here.
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Disclosure: We have no position in TAUG and have not been compensated for this article.