Well one good example, because it is so similar, is VERB. They also had a underwritten offering of “units” as part of their up list to Nasdaq back in April 2019. The units consisted of one share and one full coverage warrant that were immediately separable and both began trading in Nasdaq at the same time, exactly as SBFM is doing.
A couple of weeks before the offering and the uplist happened the stock price was around $15 (post RS). A few days before the S-1 went effective the offering price was revealed at $3.41 per unit. The market price immediately tanked to about $7… the day before the uplist/offering close another s-1/a showed up after market hours at $3.13…and the next morning the stock opened at about $3.5 and then immediately dropped to about $3. In the next few days it continued to drop into the $2 range…as the buyers of the units were able to sell the warrants to make money also…the volume was very high and only subsided after the combination of the market price of commons plus the warrant price fell below the $3.13 offering price.
So why does that happen?
Two reasons primarily:
1) The discount has to be in place for the stock to make it into the market via the underwriter, then the broker and then the market customer.
2) Nasdaq does NOT value a stock the same way as the OTC. The OTC is much more subject to hype whereas Nasdaq looks more closely at the financials. This company has very little revenue, negative operating cashflow and negative shareholder equity (ie. Negative book value). Nasdaq investors are going to pay a little more attention to that then the OTC, and less attention to the hype of future “possibilities” than the OTC.
And on top of that it appears this offering will be dilutive to the tune of around 30%…that is a lot.
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