theglobe.com, inc. (OTCMKTS:TGLO) has emerged as an exciting small-cap pick, in the wake of reports it is set to merge with a big player in the energy space. Reports that Delfin Midstream bought some stakes in the company is the latest catalyst pushing the stock up the charts.
A 500% plus spike in the share price since the start of the year has come at the back of no solid news from the company. A spike in share price does not come as a surprise given that the small-cap company soared by 600% 20 years ago in carrying out its Initial Public Offering.
The acquisition talks appear to have reinvigorated investor’s sentiments seen by a surge in volume of shares traded.
After initially plummeting from record highs of $0.30 to $0.09, the stock has bounced back and is currently trading at the $0.20 handle. Initial indication is that the stock could try to make a push for its 52-week high, given the strength of the upward momentum.
However, a plunge followed by a close below the $0.15 mark could see the stock plummeting back to the $0.09 handle, below which it remains susceptible to further declines.
What Does the Globe Do?
theglobe.com has evolved over the years upon incorporation in 1995. The company was one of the first social media sites. The company initially provided a platform where people in a network provided information as well as share their online experience and interests.
Having struggled on the initial business venture, The Globe.com embarked on a restructuring process that resulted in a sell-off of assets to Trailance Registry Management Company. After the sell-off, the company became a ‘Shell Company’ with no material operations or assets.
Ever since the company has been looking for new business opportunities in various industries.
It now appears that TheGlobe.com might as well have gotten its lifeline after years of uncertainty. Late last year, Michael S. Egan and other stockholders entered into a common purchase agreement with Delfin Midstream LLC. As part of the latest restructuring that seeks to reinvigorate the company’s long term prospects.
Under the agreement, Delfin Midstream agreed to purchase 312.8 million shares of The Globe.com par value of $0.001, representing 70.9% of the total issued and outstanding shares. The transaction closed on December 31, 2017.
Upon closure of the deal closed, CEO, Mr. Egan, Edward A.Cespedes, Treasurer and Chief Financial Officer, and Director Robin S. Lebovitz ceased to be members of the board. William Nichols who will double up as the chairman of the board, CEO and CFO have since taken up their positions.
“Mr. Nichols will serve as a director until the next annual meeting of stockholders of the Company and until his successor is duly elected and qualified or until his earlier death, resignation or removal. Mr. Nichols will serve as Chairman of the Audit Committee and Compensation Committee,” theglobe.com in a regulatory filing.
The appointment of Mr. Nichols has provided some hints on what theglobe.com could be up to, going forward, following the takeover.
Nichols joins the company with vast experience having worked in the civil construction, real estate, and oil & gas businesses for 40 years. Given that Delfin Midstream is currently developing the first floating liquefied natural gas vessels in North America, there is already talk that the takeover will expand the company’s footprint into the lucrative energy industry.
There is also talk that the acquisition will help the company avoid paying a substantial amount of taxes that over the years have plunged it into losses.
“As of December 31, 2016, we had net operating loss carryforwards which may be potentially available for U.S. tax purposes of approximately $166 million. These carryforwards expire through 2036. The Tax Reform Act of 1986 imposes substantial restrictions on the utilization of net operating losses and tax credits in the event of an “ownership change” of a corporation,” theglobe.com in a regulatory filing.
What next for theglobe.com
Theglobe.com is showing signs of trading higher after bouncing back after a recent sell-off. The fact that the company will be able to reduce its tax obligations upon merging with Delfin Midstream, is a positive that should continue strengthening the stock’s outlook on Wall Street.
However, there are also risks associated with the stock given that the company’s future is still shrouded in mystery after the recent takeover. The new management team is yet to issue an update on what investors should expect going forward. It is also unclear whether the company will turn its focus to the energy industry after the takeover.
While the company has every reason to succeed on the takeover, investors should still approach the stock with a lot of caution. Until the company comes out clean on its next direction and areas of focus, it may be wise to sit back given that risks at the moment outweigh benefits.
Disclosure: We have no position in TGLO and have not been compensated for this article.