CYBL Analysis – CE and the Share Price Implosion

I wanted to get down some thoughts in a post about the CYBL CE and the general implosion going on at the company and in the community. Let me be clear, this is not the end of the company in my opinion. This is just… not a good time for them… Let’s get to it.

Note – I’ m overseas right now and writing this over two days, so hopefully I did not miss something!

What is a CE?

Everyone just likes to throw around the acronym CE. But for my newer investors out there, CE stands for Caveat Emptor. It is a legal term that basically means “buyer beware” from its Latin roots.

What it means for OTCMarkets and in investing is that OTCMarkets has deemed this security has an overt level of risk for reasons other than typical risk in the stock market. It is all discussed here.

As you can see, many of the reasons why a stock gets this designation are somewhat nefarious – misleading investors, fraud, or non-disclosure. Others could be more of “honest mistakes” like self-promotion, an error, etc.

What does it mean for CYBL?

CYBL’s caveat emptor means now that basically all of the major brokerages where people buy penny stocks: Fidelity, Ameritrade, etc. will no longer allow you to purchase their stock. If you want to sell, you can. However, (and this varies by broker) they will NOT provide a price quote (generally the last traded price) nor will they provide you the bid-ask.

So almost everyone can sell, but not many can buy. You can guess what that does to a share price.

What happened?

Where to begin with this… For basically the last 12 months, CYBL has had serious issues with its disclosures and financial reporting. By my count, since August 2021, they have issued a grand total of 47 disclosures to OTCMarkets: 14 of them were final quarterly/annual filings, 2 were late notices, and 31(!) were overwritten amended filings.

Clearly, they do not have their stuff together when it comes to reporting.

Because of all of these issues, they were considered Pink Limited for quite a while. This in itself is not great, but it seemed like they were getting it together. For the most part, the story was that they didn’t have enough disclosure around who owns their securities (common and preferred), but it may have been other things I’ve missed.

Then, out of the blue on Friday after close, OTCM slapped the CE tag on them. Rumors were flying about what the rationale was and Twitter was going crazy over it. The company issued a press release and stated that the crux of the issue was that they didn’t disclose that their attorney owned shares in the company. Also, this attorney is now on the “Prohibited Providers” list (found here).

These are the same attorneys who attest that everything they release is accurate and complete… So it’s sort of plain to see why OTCM did this.

There were subsequent releases which claimed it was mostly the attorney’s fault (according to the company) and that the company didn’t have any “major” or “structural” issues. Take that as you will, but that’s what the company is saying.

In response, the share price dropped around 50% on Monday and closed out Tuesday around the same place… but again you can’t be too sure of price quotes because of the CE tag.

So that’s the quick rundown from what I can tell, now my thoughts.

Bull Case

In my life, I’ve found that more often than not, it’s best not to assume malice when incompetence is likely the culprit. I think that could very well be the case here with CYBL. I’ve been critical of them before the CE issue about their poor disclosures and financial reporting. But I’ve always been impressed by the ability of their business.

Because of this, the bull case is really centered around the company and management being more focused on business expansion and poor delegation around disclosures. Is that an excuse? No. But for the bulls, with more business success and profit comes more potential investment in back-office support which is supposed to iron these things out.

The CEO also released a video updating shareholders here along with a series of press releases on Twitter.

The main takeaway I got from this is that the CEO and key management basically didn’t pay attention to it and delegated to someone who didn’t get it done. They of course take full responsibility, they’re remedying the situation with a new law firm, more back-office, etc. yada yada yada… and it’s not going to be a problem anymore.

Bottom line of the bull case – this is just a blip on the radar, they’ll fix it, and we’re all going to be rich! (well not me, I don’t own shares… you get the point 😊)

Bear Case

For the bears, I guess this is music to your ears.

To start, you have to understand that management owns like 80%+ of CYBL via the convertible Series B Preferred Shares. HOWEVER, as part of Operation Alpha, they SPECIFICALLY structured the company to continue to have PUBLICLY TRADED common shares. The company was worth basically nothing back then. So with that injection of capital they easily could have just taken it private if they wanted to.

BUT THEY CHOSE TO BE PUBLIC.

That means that have to carry the public company baggage so to speak. This company isn’t entirely owned by management and private investors, and that means they have to put the effort in. Which clearly, they didn’t.

While above I mention incompetence, the bear case is that management was deliberately negligent to its common shareholders. Nobody can prove if they were lying/being deceitful, but it’s not a stretch to think that management was not upholding their most basic responsibilities to common shareholders. Investor confidence is rock bottom right now for a reason, and it is hard to say that management has had common shareholder’s best interests in mind. Clearly the market agrees as well.

The bottom line of the bear case is that management may be negligent enough that you can’t trust their ability to steer the ship going forward. Sure, they could start to get their filings right over the next few months and improve. But would it be enough? What else is going to go wrong?

My thoughts

Now that I’ve laid out both sides, where am I? I’m honestly somewhere in between.

First off, I absolutely will not ever invest in a company that isn’t at least pink current. So that should tell you my current feeling of CYBL’s management from a reporting quality perspective. I will never invest in them until they are pink current, and that goes for all companies. If they can’t handle being public, take the company private. End of story.

I’m going to be honest… if you can’t manage to get correct filings out, how in the world can investors trust whatever you’re telling them. Plenty of CEO’s and management teams have very rudimentary knowledge of finance… that’s why they do that thing? what’s that word? Where you pay someone to do stuff you don’t know how to do?? Oh yea, you DELEGATE IT.

If my water heater explodes and I don’t know what to do, I don’t just go off to work because that’s the only thing I know how to do. And I don’t call my alcoholic uncle Slippery Pete to fix it because he apprenticed as a plumber before he did 10 years for a DUI. I call the expert!

I mean come on… this company is close to profitable, has cash on hand, and has capital to grow. You’re telling me these guys can’t figure out how to do the bare minimum of penny stocks and keep the CE tag at bay? YOU JUST SPEND THE CASH ON THE RIGHT ACCOUNTANTS AND LEGAL TEAMS, IT’S NOT THAT HARD.

There are some obnoxious scam companies out there that can get their filings done correctly. So this isn’t asking much. Even George Sharpe’s companies are pink current for cripes sake!

Okay that’s enough of my rant…

I said above I was middle of the road (believe it or not after that rant), and here’s why. First, it is very unlikely that CYBL is straight up fraud. Disclosure issues, yes. But fraud, I don’t think so.

The financial performance they’re listing isn’t crazy, nor are their forecasts. They’ve posted solid growth and forecasting good growth for the next five years. They’re not out there promising to be the next Raytheon in the next five years by any means, let’s be honest.

So that’s good sign number one.

Good sign number two is that they generally meet their targets and have a pretty good track record of meeting business targets. Disclosure related targets not so much, but other targets related to revenue, acquisitions, hiring, etc. generally go to plan.

Good sign number three is that they are, despite their filing problems, actually pretty transparent all in all. There are so many OTC companies with CE tags and you never hear a peep from them. At least CYBL is talking about what they’re going to do.

All in all, while all of these developments aren’t exactly shocking to me, and they are objectively not good for the company, I have not written off CYBL yet. Quite the contrary, if they can clean up their disclosures and the share price is still around where it is now, I’ll be very tempted to finally invest. But for now, we really need to see them clean all of this up.

The next 30 days will be very telling, and I’ll be watching closely. For an investor with a high-risk appetite, this wouldn’t be the worst bet in the world right now.

Thanks for reading, and as always apologies for the rant 😊.

THIS ARTICLE IS NOT FINANCIAL ADVICE AND IS INTENDED ONLY FOR EDUCATIONAL PURPOSES. I AM NOT A FINANCIAL ADVISOR.

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