CYBL Analysis – Ownership Structure and Preferred Shares

In today’s article I’m going to discuss CYBL’s ownership structure to help better equip you in valuing the common share price of the stock. I’ve seen a lot of people misconstruing the ownership percent of one common share, and therefore getting their perceived value of the company wrong.

I’ll try to keep my opinion out of this until the end…

And listen, this article is going to sound pretty negative. And it should. However, I still have a very favorable opinion of the company itself. I AM VERY BULLISH ON CYBL LONG TERM. But they really need to clean up some of this junk, it’s holding them back.

Anyways, hope this helpful!

Ownership Structure

Right off the bat, let’s get our reference point. Below is the current share structure of the company along with the amount of potential new effective common shares we have to factor in. All of this is as of the date of publishing the article.

So we have 25.7bn effective common shares out there which represent the full equity ownership in the company. That’s a far cry from the outstanding shares we see on OTCMarkets of 5.4bn… why is that and what does it mean?? Let’s discuss…

Side note – before someone points it out, I’m not factoring in the RB Capital convertible debt. It’s not that many shares and everyone would be so flush with cash to even care if the share price ever went above 0.25. This also doesn’t factor in future share-based compensation to company members or shares issued for new acquisitions… this is just a snapshot of today.

CYBL’s Value vs. Market Cap

Market cap, at its core, is just the number of outstanding common share times the current share price. For a company that only has common shares in its ownership structure, then the market cap is basically what the market is saying that company is worth on any given day.

However, as we’ve shown above with CYBL, they have convertible preferred shares out there that are WORTH more than 20bn common shares but are not considered common shares outstanding until the preferred shares are converted.

This means that the market cap you see is vastly understating what the market deems the true value of the company. The current market cap for CYBL is, all else equal, only equal to about an ownership stake of around 20% (5.4bn/25.7bn). This means that the true “market value” of the company is really more like: (market cap)/20%. In other words, if the market cap is 100m, then the full blown company is worth around 500m.

What this also means is that, say you buy 1% of the outstanding common shares, you don’t actually own 1% of the company. It’s really more like 0.20% of the company. This also means that anything calculating EPS, P/S, P/B, etc. is using 5.4bn as the denominator, not 25.7bn

All of this is very common in the OTC and it’s sometimes very hard to get a true picture of how much your purchase of a common share really gets you.

Let’s get into some detail on the three preferred share classes.

Series A Preferred Shares

(As an initial caveat, I know current management inherited a lot of this junk. But it’s still there so I have to talk about it.)

No offense to the company, but this class of preferred shares is actually hilarious and basically a microcosm of the nonsense you run into on the OTC. Let’s run through these.

These bad boys date back to 2004 and all of the owners are currently unknown… fun! I like to imagine some old geezer is going to remember angel investing CYBL while stuffing himself with tapioca at a nursing home. Then an angry phone calls ensues to his old financial advisor which will go unanswered because they went under in 2008. I kid, I kid… but oh it gets weirder…

For some reason there’s 26.9806 shares of these… yea. I have actually never seen this in all of my years of reading filings… I’m sure it’s out there but man… weird. How did this even happen?!

Next, CYBL reverse split in 2010 in a 200 for 1 split. For whatever reason, our old geezer had way more faith in old CYBL than he should have because he didn’t add protection for a reverse split. Genius! No wonder they can’t find the guy… Because of that, these shares are only convertible into like 6.7k shares. If they had split protection, he would have the equivalent of 200*6,700 = 1.2m shares. Quite a difference!

I’m only talking about these so much because I think they’re hilarious, but they don’t really matter so I’ll move on.

Series B Preferred Shares

I joke around a lot, but the Series B is no joke and is absolutely the one you need to understand. First, these are convertible into 20bn common shares with no restriction. So we have to assume that these common shares are out there and are diluting the crap out of outstanding common shares.

If you didn’t realize this, then I don’t know what to tell you. BUT THE GOOD NEWS IS THE MARKET IS PRICING THIS IN. That’s right… your common share price you see from the market is already factoring in that the current outstanding common shares are vastly understated. This also means, like I mention above, the market cap you’re seeing on OTCMarkets or wherever looks so low for a reason!

And before someone says “hey but you can’t TRADE those 20bn shares so it doesn’t matter!!1!111!!”. Yes they can’t trade them, but anyone who can read some filings can figure out that common shareholders currently aren’t investing into a 100% ownership pool, it’s only like 20%.

Side note – these convertible preferred shares are everywhere on the OTC and it’s up to you to figure out they exist… see AITX, ILUS, etc.

So now you know… now a quick rant.

Series B Rant – Skip if you Want

I can. not. believe. how poorly the company describes the Series B in their filings. At no point do they just flat out say: each preferred share converts into 200 shares. The closest they get is by saying (from the Q3 filing):

“Because of the common stock share restructuring in 2010, the current Series B Preferred Management Voting Rights structure is defined as 200 common stock share votes per share of Series B Preferred.”

And they refer to them as “Poison-Pill Voting Control Protection”.

THIS IS SO MISLEADING I CANNOT BELIEVE IT.

As a quick step-back, there are preferred shares out there that do not actually convert into common shares, but they give you like 51% of the common vote no matter what. So no dilution, but it gives the CEO or whoever voting power no matter what. Basically it protects them from a hostile takeover without diluting the crap out of common shareholders.

THAT IS NOT WHAT THE SERIES B IS, YET THEY MAKE IT SOUND LIKE IT IS. They really seem to shy away from saying that each one converts into an actual common share. They say “200 common stock share votes…” Why did they feel the need to say, “share votes”? That makes it sound like it’s voting protection only. BUT IT’S NOT.

They also use the word “Poison-Pill” which, again, implies it’s not dilutive to common shareholders. Poison Pills are, by design, only supposed to dilute a NEW shareholder from taking over. But these clearly are dilutive.

The crazy thing is, they used to just flat out say it and then stopped. I have no idea why. Below is from their 2020 annual report before it was amended (issued 8/3/2021):

The 2021 annual report used to say it (issued 5/16/2022) but then one re-issued (again) on 9/1/2022 removes it. Why take that out in the amended filings? Why why why? That is what I kept saying to myself when reading their disclosures over these shares and pulling my hair out.

Also… you can see in their financials that people DID convert to common at 200 to 1 before… see below.

All in all, they need to clean this up so badly. If/when this company actually gets a real audit, I would bet my life that there will magically be a way more direct and real description of this. They’ll probably even do one better and make a nice table like I did above. I guarantee you some potential big investors read their quarterly filings, get to these sections, roll their eyes, and then move onto other stocks.

This needs to be cleaned up. Period. There’s a reason why they aren’t pink current.

I’m sorry, rant over.

Series C Preferred Shares

To wrap here we have the Series C. This is also a bit of a funny one, and it’s only funny because it only converts into 343m shares. For whatever reason, CYBL purchased some, likely now useless, technology back in the 2000s in exchange for the Series C. Who knows what it was?

What we do know is that they’re now owned by two universities who, for whatever reason, don’t want to convert their shares and get this eyesore of their books. Most likely the universities don’t want to have hundreds of millions of penny stock shares on their balance sheet that they have to try and sell. Look for CYBL to just buy these out as they get more cash for buybacks.

Wrap Up

Sorry this delved into a bit of rant, but I hope this was at least helpful information.

The bottom line is this: you need to know these shares exist, CYBL needs to clean up their financial reporting, and I am still bullish on the company’s prospects.

But please, please, please just remember that when you calculate your intrinsic value of the common share price, you need to use approx. 25.7bn shares as the base, not 5.4bn shares. Just because the Series A-C exist isn’t inherently bad, everything has a price. You just need to make sure you’re calculating the right price.

Alright that’s all folks… thanks for reading!

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