2023-03-03 TRKA Due Diligence
For this short squeeze to be successful it’s important for all of us new and old to TRKA to understand what we own and why this setup is so special. Understanding the fundamentals specific to this play will keep you calm when the price drops to $0.40. It will also keep you calm when it rockets to $1, $2 and beyond, cause you will know that what you’re holding is a golden ticket.
1| What is Troika and Converge
Troika (TRKA) was a small online ad company that IPO’d itself onto Nasdaq in Mar 2021. They stated in their mission they seek to help companies dominate ad space on the web and that they are seeking during COVID to effectuate an acquisition. Troika alone in 2019 and 2020 were operating at a loss, albeit a small loss. Their real mission was always to acquire a money-making firm and take them to the next level. Enter…..
Converge (website) is an online ad company with offices in NY, and CA. They’re an impressive little company that based on their Q3 Earnings is going to pump out about $400-500M of revenue per year. Look at their website. It’s an impressive list of brands we all recognize. Here is how strong Converge was in 2021 (pre-acquisition).
r/Shortsqueeze - TRKA - Know what you own... Realy, it's important.
Troika acquired Converge on March 21, 2022 via the financing (Blue Torch Loan & Series E) we will discuss in the next section.
2| The Merger
I’ll try to make it as simple as possible. TRKA purchased Converge for $125M. How did a small company that loses money such as Troika acquire a company like Converge that is printing cash from successful operations i.e. How could Myspace buy Facebook? Troika worked out a $75M loan from Blue Torch Finance and they gave special shares (what we will refer to now as Series E Preferred Shares) to the Converge Owners that were valued at $50M. $75M + $50M = $125M. Sticking with math we can handle ??.
Blue Torch (BT) Financial ($75M) – Guys and gals, this is a loan. TRKA makes payments every quarter. The only special part is that the terms are not favorable. If TRKA fails to make their payment, fails to have enough cash on hand, or fails to do about 100 different things BT can put them in default which gives them many options to tighten the screws on TRKA. All you need to know.
Series E ($50M) – This is the important piece. Company created Preferred Stock, 500k shares at $100/share = $50M. These 500k shares are not the same shares that are trading with us (common shares). In order for the owner of these Preferred Stock to actually get value from these shares they need to convert the Preferred Stock to Common Stock. To know how many Common Shares need to be created we need to Divide $50M / $1.5 (see conversion price below) to equal 33.333M new common shares.
But hey, I thought we were saying the Series E dilution would be 200 Million shares, not 33 Million… This is where the phase “subject to adjustment” below comes into play. Reading deeper in the filing you will find that if the stock goes down, well these Series E Holders will need more common shares to make it all equal $50M in the end. The adjustment clause states that at no time can the conversion denominator go below $0.25. Now let’s redo that math in this low stock price theoretical. $50M / $0.25 = 200M new commons shares that must be made. The below also calls out the creation of some new warrants. Let’s just ignore those please.
r/Shortsqueeze - TRKA - Know what you own... Realy, it's important.
Further on in this Series E they say that TRKA must file with the SEC to register these shares with a couple weeks, which they did on April 4th. If you look at the S-1 filing it says, they could issue as little as 33M or as much as 200M based on the price of the stock. They just need to accumulate $50M at the end of the day and will issue as much as it takes (up to 200M).
Here are some interesting points on stock prices for context
March 21 (day of merger) - $1.05/share
April 4 to April 12 it dropped fast to $0.53/share
Middle of May it’s dropped down to $0.35/share
Prior to this Series E Troika has 43M shares outstanding. Offering 200M shares is like cutting the company into 1/6th. Now you can see why shorts love it when a company issues an S-1 registering new shares. They know dilution is coming, they know there will be massive selling pressure, and in this case, the more they can drive down TRKA, the more commons they have to create thus driving down the stock even further.
Now just because TRKA filed an S-1 on April 4th that doesn’t mean these new common shares are available to sell into the market immediately. SEC still has to accept the registration then TRKA can start to sell to us and everyone. In the meantime, Series E Preferred Holders are sitting and waiting. But because they have to sit and wait patiently the agreement allows for them to pretend as if they already have their shares and they could create an instrument with a market maker or broker dealer to lend them shares. This way Series E holders can hedge in case the value of their eventual commons is going down.
3| April 2022 to End 2022
r/Shortsqueeze - TRKA - Know what you own... Realy, it's important.
The stock gets crushed. Short hedge funds do what they do. Through the end of 2022 they are anticipating 200M new shares hitting the market causing insane dilution to a small cap. This is blood in the water to these sharks.
Few other 2022 Updates you need to know.
What is Blue Torch (BT) been up to for the rest of 2022? – They’re still there. They’re being fussy claiming that TRKA is breaching one of their 100s of covenants. What is positive though is that about a dozen times from acquisition to today BT and TRKA have issued mutual limited waivers granting them time to fix these defaults. From what I can tell these defaults do not appear to be monetary in that it doesn’t appear that TRKA is missing any payments which is good.
THE SERIES E GETS AMMENDED – This is key to understand for later on. Remember these Series E holders have to sit and wait until the SEC registers the 33-to-200M of shares and then TRKA sells them. Well this hasn’t been completed yet and Series E holders get an amendment to the deal on September 27th. What’s important about this amendment is that it gives TRKA the option to completely avoid diluting any shares if they can simply pay up $50M of cash to the Series E holders. We will call this the SERIES E BUYOUT. This amendment didn’t say which route TRKA would go (dilution or buyout), it just left the option open in the future. But given the company didn’t have anywhere near $50M cash on hand, it didn’t appear like they would be doing the buyout anytime soon. Dilution is still on the table for those pesky shorts.
4| Q3 2022 TRKA Earnings
TRKA releases record earnings on Nov 14th. They smashed it. For reasons I can’t understand after this the Shorts double down. The send it from $0.30/share to $0.10. Now this is where it starts to pick up serious attention from the ShortSqueeze crowd. One thing that is interesting from the Q3 report is that TRKA has $33M of cash on hand, and $37M of cash receivables. Combined that’s about $70M of liquidity. Now don’t get too excited, they still have lots of bills to cover, none the less those loan payments to Blue Torch. But what is important to remember is that they’re increasing in cash-on-hand and this Q3 report is based on September 30th… How much cash could they have on hand today in March 2023???? This will become important, cause as you just learned, if they have $50M… maybe they could do the Series E Buyout rather than Issuing Shares and Diluting. Just remember this point…
5| 2023 Updates
These past two weeks have been crazy. It all started on February 17 when TRKA issued a RW (Registration Withdrawl) with the SEC. Here they are saying they never issued these 33-to-200M shares, and that they don’t need to. Now from what you just learned from the Series E Amenement is that TRKA had only two options. DILUTE -or- Pay $50M Cash. Well this RW has taken Dilute off the table. We don’t know definitively, but to me, there is NO CHANCE they would issue this UNLESS they paid out Cash to the Series E Shareholders via the Buyout. I believe TRKA was able to harvest enough cash in Q4 and through Feb to be able to pay $50M.
So this goes down on February 17th, we now have a 3-day weekend. Next trading day February 22nd. TRKA and JEFFERIES issue PR they’re working together. This is so exciting, Jefferies gets their own section.
6| JEFFERIES LLC
Where have I heard of these guys before…
Shortly after the Gamestop spike in 2021, GME needed to capitalize on their now much higher Market Cap and Stock Price. They enlisted the help of Jeff.
Jefferies is also known to be fair to the meme stock world. HERE.
Jefferies is a global powerhouse with dozens of offices and thousands of employees. What do they want with a $20M market cap stock with 200 employees like TRKA? To find out you must read my thesis.
7| My Crystal Potato
Now that I’ve given you all the backstory I’ll tell you where my potato is guiding me.
· Short’s thesis since April 4th (filing of the 33M-to-200M shares) has always been that this stock is going to massively dilute.
· TRKA never got their shares registered. But they probably sat back and saw their stock price diving and were happy they never got registered because they don’t want to dilute their shares from 60M to 260M shares. They especially don’t want to dilute when they know behind the scenes Converge is crushing it.
· TRKA add the buyout option. Shorts never expect that they can gain $50M, they short more, not worried at all.
· Q3 Earnings come out, ShortSqueeze world identifies the incredible value TRKA is at $0.10/share
· It’s at this time in late 2022 that I believe Jefferies engages TRKA and tells them about the short sale shit storm (SSSS) that is brewing. Jefferies knows what could come if TRKA does the following:
· Jefferies advises TRKA to do the buyout
· Jefferies advises TRKA to withdraw the S-1 filing (2/17) (this was dynamite to the short thesis)
· Jefferies and TRKA announce they’re working together (they didn’t need to do this, this was the atom bomb to shorts)
· FUTURE STUFF
· We will squeeze
· At a strategic time Jefferies and TRKA will announce a share offering at-the-money
· TRKA can extract enough capital to refill their cash from the buyout, payoff their Blue Torch Loan and buy everyone a margarita.
· Jefferies crushes shorts again just like GME.
“BUT ISN’T THIS DILUTION, THAT’S BEARING MR. DOGSHITHANDGRENADE?!?!” Yes, it’s dilution, but at these higher squeezed prices it will be minimal dilution compared to what could have occurred with the 200M share filing.
8| I’m not a stock expert. I’m just doing my best. This is not financial advice but I am excited about the stock. TRKA and Converge seem to be a strong company that is taking in a lot of revenue. If they can get out from under their Blue Torch loan their profitability goes up even further. At $0.50 I don’t see a ton of risk compared to the rest of the equity market. The upside is incredibly high. This is an asymmetrical bet, and this is not financial advice and I expect I made about a dozen mistakes in this analysis that is pissing off a bunch of you wrinkle-brains.
9| I didn’t talk much about Short Interest %, FTDs, Short Exempts, Fibinachhis, blah blah blah. Mostly because I don’t understand it well enough to preach it. When you’re reading all your charts it’s important to recall this thread so you are confident in the background of what you own.
