CYBL Analysis – FY 2022 Annual Report Re-issue Follow-up Analysis

Hi all, I’ve finally had some time to go through the CYBL annual report re-issue that was released on March 28th. As some back story, I wrote an article here which went through several issues I found in their annual report. To put it mildly, I did not think it was a very high-quality report. I suggest you read this first, if you haven’t already, as I won’t reiterate a lot of points.

However, they reissued rather quickly, which is good, and fixed a lot of the issues I mentioned. However, I’m still seeing a few issues and one major one.

I’m not going to keep pounding the table with my thoughts on CYBL’s 2022 filing, so I’ll be keeping this rather short and sweet.

Let’s get started!

What They Fixed

Here’s what they cleaned up from my prior article:

  • Series A holders are now listed.
  • Series C holders are now listed.
  • Partially explained that the Series B shares were returned to the treasury (29.5m) and they came from both Ringo and Downing. But there are still some missing/not disclosed, will get to that.
  • Subsequent events – added some detail around some movement on contracts post-December 31.

Issues I’m Still Seeing

My biggest problem with this report is that it took one step forward with the Series B (the sentence on some Series B returned to the treasury) but then it took two steps backward.

Series B Description

First, instead of just fixing the grammar in their first description of the Series B, they decide to double down on the “Poison-Pill” terminology and go from saying this:

The Series B Preferred shares are convertible 1 share of Series B Preferred for 200 shares of the Company’s common stock.

To this:

Designed as a ”poison-pill” mechanism, 1 share of Series B Preferred is convertible into 200 shares of the Company’s common stock.

This had me pulling my hair out when flipping through my track change version of the report. Let’s all get one thing clear – the Series B is FOUNDERS/MANAGEMENT EQUITY IN ITS CURRENT FORM.

Look at it this way… note how Mark Schmidt and David Downing don’t actually own any other share class or any other equity for that matter… do you really think they’ve effectively founded this business and are running it in exchange for a salary and the goodness of their heart? You show me a CEO and CFO who don’t own any equity in their own company and maybe I’ll see a pig flying outside my window.

So let’s get one thing straight right now. The Series B, while it functions as management control right now and is partly a poison pill, it also forms the basis of their OWNERSHIP in the company. Investors should not pretend like these shares are fake and the common shares they convert into aren’t real. They are very real.

If they really wanted to make it clean – you would remove the conversion option on the Series B and just give the holders VOTING power over X amount of common shares. But they would have no conversion rights or liquidation preference over common. Plus, if they only have VOTING control they can still pretty much pay themselves whatever they want in terms of common shares, compensation, etc.

This way, they can just pay themselves in common, stop these political word games they’re playing, and investors get a clean view of the ownership in the company. Then it’s just up to the common share investors to trust management to properly compensate themselves going forward.

The puzzling thing to me is that these shares are changing hands so freely and seemingly without compensation. This makes it sound like they really ARE for voting control only, but that still doesn’t make any sense because management doesn’t really own any other equity in the company.

I find it hard to believe John Ringo and David Downing were doing all of this for no equity… there must be some future compensation in the works. Either way… at this point we need to follow the facts and assume that all of those Series B represent real economic (not just voting) ownership in the company, regardless of who owns them.

This is one of the most bizarre ownership structures I’ve seen on the OTC…

Now let me make one thing clear – the fact that the Series B exists in its current form DOES NOT MATTER from a share price perspective. Despite what it says in the annual report, anyone who can read knows that management owns a massive chunk of the company via the Series B. Therefore, the market knows that common share ownership isn’t into a pool of 100% ownership in the company, but something much lower.

Heck, even if these convert, it theoretically doesn’t affect anything other than them needing to raise the AS (unless they all start selling at the same time!). The only way these ever get converted en masse, in my opinion, is if CYBL gets acquired or they are uplisting and need to clean out the Series B.

All in all, the Series B is priced in.

Because of this, I feel like they are almost starting a Streisand Effect with the Series B. Just say what it is and get it over with.

I promised myself I wouldn’t rant on this, apologies…

Series B Ownership

Like I mentioned above, they explained 29.5m shares of Series B went back to the treasury – cool stuff. However, they didn’t actually disclose the entire ownership structure of the Series B. I made a handy table below on the before and after picture:

In short – 21.2m shares of Series B are not disclosed. Unless like 10 different people own these (very unlikely), these HAVE to be disclosed. Why they weren’t, I have no idea…

Until these are disclosed, OTCM should NOT accept this report as qualified and the CE should remain on and they should not be considered pink current/limited.

Related Party Loans

At this point, I’m not going to rant about it because it’s likely not required, but it’s pretty strange and almost makes me more nervous that they still haven’t disclosed the full list of related party lenders to the company. It’s not even that much money not disclosed (like 1m), so why not just say it?

They’re probably going with a “less is more” approach, which I sort of don’t blame them for. But this seems like a disclosure layup so why not just do it? They’re a related party, so it can’t be that bad to show it, right? There name is probably in the report already…

Wrap Up

To wrap up, they took some steps forward, but the Series B is still woefully inadequate. I think there’s still one more reissue in the cards for CYBL to clean up the Series B ownership. The rest, unfortunately, won’t be changed, I think. Once the Series B ownership is cleaned up, OTCM should be able to review and maybe take off the CE if they are satisfied.

That’s all folks, thanks for reading as always!

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