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Share holders screwed by offering of CUEN shares


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Share holders screwed by offering of CUEN shares

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  #1 (permalink)
Bulltripping
Los Angeles, California
 
 
Posts: 1 since Feb 2021
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Hi, I was a long term stock holder of CUEN. They did an offering for units 4 weeks ago on Feb. 1. The offering was for a unit worth $4.30 (post reverse split). The unit consisted of one CUEN share for $4.29 plus one CUENW warrant at .01. The warrant could immediately be converted to a CUEN share (this part confuses me). As a shareholder, I was not made aware of the offering. On February 4th the offering closed and CUEN up listed to Nasdaq from the OTC. The stock immediately dived down in value (usually there should be not drop in total value on a split, right?). My broker TD Ameritrade said it was panic selling and they did not know about any offering. I think existing share holders got screwed, while insiders who bought the offering made out by redeeming a penny warrant for a free share. I have tried reaching out to CUEN several times and have not heard back. What can I do?

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  #2 (permalink)
tradecombine
SAN ANTONIO
 
 
Posts: 8 since Feb 2021
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Unfortunately for you, this is how stock splits work.

The shares have been diluted.

If you haven't already, Google this: "understanding stock splits"

Disclaimer: Don't take trading advice from a piece of farm equipment.

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  #3 (permalink)
 brach 
Austin
 
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@tradecombine it was a reverse split so the price should go up, all else equal.

@Bulltripping I'm not a financial adviser so please take this with a grain of salt. As far as I can tell this is what happened.

***EDITED to reflect that the close on 2/1 (according to Yahoo) INCLUDED the effect of the reverse stock split.

They initially announced this offering in a registration statement back in Oct 2020. They didn't know the pricing back then.

The stock closed at 5.78 on 2/1 according to Yahoo. While I believe the reverse-split took place after the close, I think this 5.78 reflects the split.

Right after that, they announced the pricing of the new offering of approx 2.8M units. Each unit was comprised of 1 share of common and 1 warrant. The pricing was $4.30 per unit.

Thus, a unit was valued at 4.30. If the stock is worth C and a warrant worth W, this implies C + W = 4.30

This pricing per unit was probably a mild shock because at the close on 2/1 the post-reverse-split implied value for C was 5.78, while after the pricing the implied value for C was 4.30 minus W.

A couple days after the pricing was announced the stock (ticker CUEN) was trading at 3.59 or so and the warrant (ticker CUENW) was trading at 1.19 or so, implying a value per unit just over the offering price.

Note that the warrant is not a "penny warrant." It's strike is $4.30, which is out of the money, with a 5-year expiration date. Thus, it's value is based on "time value" and it has no "intrinsic value." Exercising it doesn't seem to make sense, because you'd be paying $4.30 for something recently trading for $3.20 or so. However, the folks who bought the units could sell the warrant for the time value.

Looking at their past few 10Q's, their accountants have been giving them a "going concern" qualification, which sometimes indicates significant financial difficulty. Accountants do this because one of the assumptions of financial accounting is that an entity will be able to continue as a going concern, and if that assumption is not met then the financial statements are in some sense suspect.

If you're not familiar with Edgar, it's a useful source for company filings. Here's a link: https://www.sec.gov/cgi-bin/browse-edgar?CIK=1424657&owner=exclude

Also, here's a link to the updated prospectus for the "units" that was filed on Feb 3: https://www.sec.gov/Archives/edgar/data/1424657/000121390021006532/ea134529-424b4_cuentasinc.htm

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  #4 (permalink)
tradecombine
SAN ANTONIO
 
 
Posts: 8 since Feb 2021
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brach View Post
@tradecombine it was a reverse split so the price should go up, all else equal.

Thanks for pointing that out.

Like I say, don't take trading advice from a piece of farm equipment.

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