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DS
You are wrong they hold a warrant to acquire shares not the shares. I have written a lot of disclosures like this one over the years and taught classes on these rules. The disclosure merely says LRS holds warrants which are a different legal instrument than the underlying shares. To get the underlying shares they need to pay the exercise price.
I am willing to bet my home on this point. The SEC disclosure rules on equity instruments and constructive ownership are tortured by am 100% confident that I am right on this point.
They own warrants not the underlying shares. The SC rules require constructive ownership disclosure. If the warrants were exercised and they owned the underlying shares, ECOS would have needed to disclose the exercise in their subsequent event footnote. No disclosure there.
If they did exercise the warrants and owned the shares then this 10K would be materially incorrect.
Actually LRS will exercise each warrant when the ECOS stock price exceeds the strike price in the warrant. You would never exercise an underwater warrant.
Actually that is not entirely accurate. The error goes back to when they started issuing convertible debt. The effect of the derivative liability continues today since the value of the convertible debt moves with the stock price. This is tortured and complicated accounting.
There are a couple of new items in the 10K.
- They are consolidating ECOS Bio Art into the ECOS financials. This will create some visibility into the results of the LRS JV going forward.
- They had to record a derivative liability for the LRS warrants. This liability stays on the ECOS books until LRS exercises the warrants. Since it is reported in the 10K and there is no subsequent event disclosure, you can conclude that LRS has not exercises any of the warrants as of today.
Remember their salaries are over $500k, they have rent and interest on debt. They had no revenue till this year. Doesn’t take long to rack up real amounts of debt. Most of the debt is to employees for unpaid salaries and to inside shareholders and their companies
That language is specific to that note. The 9.99% changes with each share issuance. The 13G is based on the note date.
You get to the amount of debt by Multiplying the number Of shares by the close price of $.0001. Then multiply that amount by 60% to 80% (this is the inverse of the discount). The answer is about $50k. There is your answer to the first question
If you look at the 10K you will see Tonaquint was owed $575k at 12/31. Subtract the $50k they just converted and you are left with $525k
Be careful here. The amended statement of ownership relates to one of Tonaquint's $50k notes. They still hold about $525k in convertible debt.
That is accountants speak. They have to use those words since they have limited cash resources and rely on the capital markets to fund operations (which may not always be available). As an auditor you require this disclosure or no opinion.
This isn't all of Tonaquint's debt, just one of their notes. The $50k note.
You can see from the amended 10K their total debt was over $585k at January 1 which translates into between 5.5bn to 6.4bn shares.
Bet ECOS issued some more shares to pay expenses.
The 14C provides it can be used for general corporate purposes
Kevin
Likely not a debt pay off. 600m shares only pays off about $40-50k in debt (at $.0001). Likely operating expenses.
Adam
MS did post on IHUB before. I know this as it came from his lips. He really didn't have a grasp on Reg FD. I will see if I can find the alias.
You never know. It happens a lot more than you think.
One other point there was a time (a few years ago) that it appeared MS might have been actually posting on IHUB for ECOS.
I never put it past a small cap. I see it every day where they step into this pile of dung.
The definition of promoting stock is very broad. For example, if MS, Kwak or even their corporate development guy posted something which put a positive light on the stock and didn't disclose their relationship to ECOS is stock promotion. Even a negative statement intended to drive down a stock which could benefit a company is stock promotion.
The stock promotion point is subtle and law students often don't get it and they pay a lot to be humiliated by people like me.
DS
There is a subtle change that applies to all OTC listed companies per this release. It reinforces the concepts of market transparency. It builds on directives from the SEC regarding the use of social media in providing information on public companies. In this way this rulemaking applies to ECOS as it does to other OTC participants.
The SEC has stated that a company (including officers, directors, employees and 5% holders) using social media to post information regarding a company are required to identify their relationship to the company so the remainder of market participants know it is the company speaking and not another unaffiliated person.
Over the past five years the SEC has brought a number of enforcement actions for statements made on Twitter, Facebook and other mainstream social media. They have also begun to bring enforcement actions for the use of stock message boards, including boards like IHUB.
One of the things that yesterday's announcement is intended to enforce is that employees, officers, directors and 5% shareholders of OTC companies cannot post on social media and boards unless they clearly note their affiliation with the company. If you don't disclose and you get caught the consequences are not pretty. It is these rules that extend to ECOS under yesterday's release. The failure to disclose affiliation and posting is de facto stock promotion.
let me know I can introduce you to some of these characters. You will need to shower afterwards.
Not sure what you mean I know that it was in the Murray building in Oklahoma
I know since I was in the ammonium nitrate business then
I also know ammonium nitrate is the best fertility zero for weed but the geds likely don’t want it sold there. UAN is the next best thing
Compost fertilizer won’t create the right fertilizer boost from r weed
Of course the humor is the fertilizer that works best on weed is ammonium nitrate. Some may remember that some young lads misused it Oklahoma some years ago.
There was a University study done in the last two years that reached the conclusion that An is actually the right product for weed. Other fertilizers don't have enough nitrogen and in the right formulation.
It has been my opinion that the MM's will continue to print 1's until the convertible notes are turned into equity. The convert holders need the price to be as low as possible in order to maximize their returns. The converts are turned into equity at a discount (40-60%) of market price. The converts can't be converted until the financials are updated and brought current.
Kevin
I still think the MM's will print another 1 or 2 bn of 1's before we get to 2's.
My best guess is that it is Saturday. I would expect an 8K by early next week announcing this event.
You would think that since they announced that they were moving the office with great fanfare that they might actually notify their regulators.
Of course Kwak spends most of his time in Barrington at HascomK's office so he likely didn't think about the fact that the office moved.
They haven’t changed their registered office from Barrington They need to notify the Secretary of State and the SEC formally of the change or it is as if it never happened. Chalk it up to one of those niceties of corporate governance that they have never been good at.
Kevin
In light of this agreement being deemed by ECOS to be material there is no way they shouldn’t be obligated to file an 8K disclosing their agreement with the Korean manufacturer. If they don’t now they are clearly in violation of Reg FD. The Korean agmt is the backbone of this company.
The issue is they just decided a preliminary agreement is now material. That means all preliminary agreements are material to ECOS. You don’t get to be selected ve under Reg FD. Lots of other activities just became disclosable by ECOS.
DS
This PR is not an 8K FD item. They aren’t announcing a deal with Choice North only the existence of discussions. An experienced SEC lawyer would conclude you don’t disclose potential deals and discussions. They s is really strange
It also sets a bad disclosure precedent. You can now argue that what ECOS views as a material item requiring disclosure is now a much lower standard
IMO this is about a need to say something more than a required disclosure
This is a lot more complex than there 8-K laid out. Once they cracked the financials they likely figured out they had more issues with the financials. The derivative accounting rules are very complex and ECOS has more derivatives than they first noted.
Not only do they have a derivative for the convertible debt, but they have two sets of derivatives from the LRS transaction which need to be adjusted for.
1) LRS has a warrant to acquire ECOS shares at a fixed price set today but exercisable in the future. This is a stock derivative under GAAP. They need to value the derivative and record expense or income based on movements in their stock price until the warrants are exercised. In a small cap these valuations are volatile. They should have more expense to record from this warrant.
2) LRS has the right to acquire 5% of the shares of Bio Art for each of the first 8 machines. This is another derivative of equity under GAAP. They need to record expense for the grant of this right and then record income or expense as it moves until the underlying shares are issued.
3) Finally, when they formed the Bio Art JV they should have consolidated Bio Art into their financials. Since Bio Art had limited operations in 2016, the consolidation impacts disclosure more than numbers. In 2017 the consolidation of Bio Art will impact earnings and minority interest.
Derivatives area favorite subject of the SEC right now. I am not surprised that this is taking time more to get done.
LRS isn’t going to pay more than a market multiple. Commodity chem companies like fertilizer don’t sell for more than 1.5x revenue. LRS will know that companies trade at that multiple. You could see a price of $5-10m including debt. After conversion there is still $3m of debt.
To get to prices of $50 m or more this company needs to demonstrate a lot of sustainable revenue. Not there yet
Adam
.01 equates to a stock value of $200m. This company isn’t worth $200m. Based on normal market metrics it would trade at 1x to 1.5x revenue. Remember after the debt conversion there will be 20bn shares OS. My guess is .0005 in the next 6 months
That was MS in his Halloween costume. He is kind of a wise old owl
Here is a simple insight as to why the OS hasn't changed and likely won't for a couple of weeks.
1) The AS was capped at 10bn before the 14C goes effective. Therefore, the OS (in the form of unrestricted shares) can't be more than 10bn prior to the 14C going effective.
2) The 14C can't really go effective until the financials are corrected. Thee is a small securities law issue with issuing shares after you told the public don't rely on our financials. Any lawyer worth their salt would tell ECOS not to sell or issue any unrestricted shares right now.
3) Since they have issued 9.8bn, they can issue just under 200m shares.
Those worried about dilution, don't worry there can't be any until they fix the financials and declare the 14C effective.
The trial period begins on the date they produce minimum quantities not merely producing.
July 24
Based it in n food there and plant tweets and my two filed trips to LRS California RBI’s facility. On July 15 they did not meet production minimum
November 11
Thank you
Sister Mary Holy Trinity would be happy to know her years of hitting me with a ruler finally resulted in something
kevin
Tonaquint gets restricted shares which they should have gotten in September. If they did Tonaquint (Fife) can't sell these shares since they are restricted. However, since the 14C isn't available they likely didn't issue the shares. The clue the 14C isn't effective is the need to complete financials and the Company hasn't issued an 8-K declaring it effective.
Kevin
It was always in the 14C that they were issuing 9.6bn shares to Fife to take out his debt. That is what drove the AS increase. They need to get current in order to issue these shares to Fife under the 14C.
Paying off Fife leaves them with about $3m in debt (mostly related to advances from shareholders and for accrued but unpaid salaries to management). I would assume that this would either reduce the equity purchase price or be cleaned up in any sale.
If you do the math if they sell the Company for $5m including assumed debt of $3m (which would be a frothy valuation for where they are now), each shareholder would get about $.0004. $2m divided by 20bn shares
Not sure that is a deal that ECOS would or should do, but it is hard to argue that the Company should sell for more than 7x sales (which this price would be). $5m divided by 670k in revenue for 2017 (one machine).
If they had more annual revenue and some profits you could argue for a higher valuation.
One other thing ECOS needs to earn profits of about $600k (almost all salaries to management) to breakeven. That is about 10 machine sales a year.
I think if they can book a lot more sales in 2018 and complete projects you could defend a sale in late 2018 for a better per share price.