Cardinal Resources Inc (OTCBB:CDNL) Wants to Leave Sub-Penny Land

Nine months ago, some brochures were flying around and they had Matt Damon wearing a toilet seat around his neck on the front page. They weren’t covering Mr. Damon’s involvement in the organization. Quite frankly, we’re not even sure if he knew about the existence of the aforementioned brochures.

The promotional materials talked about Cardinal Resources Inc (OTCBB:CDNL) instead and they were written by Andy Carpenter – a name that some of the more experienced penny stock investors are probably familiar with. Mr. Carpenter was urging people to buy CDNL shares and he was predicting that by the end of 2015, the stock could reach $1.76 per share.

Back then, CDNL was hovering around the $0.60 mark and it was registering dollar volumes of over $900 thousand on a regular basis. Right now, nine months later, it’s sitting at just under $0.01 and although it shifted more than 5 times the thirty-day average number of shares yesterday, it barely reached a dollar volume of $100 thousand.

And that really is a bit of a shame because CDNL does seem to have one or two things going for it. The business plan, for one, is rooted in a noble cause and thanks to a few contracts that have been signed over the years, the company now has some revenues to show us. Here’s how things stood at the end of the second quarter:

  • cash: $50,318
  • current assets: $320,367
  • current liabilities: $2,720,103
  • revenues: $227,688
  • quarterly net loss: $371,807

The financial statement is hardly perfect, but the Red Bird systems have already been installed in some places and they might catch on as time goes by. A group of Chinese investors certainly think that there could be something to it.

Yesterday, CDNL announced that the aforementioned investors which remain unnamed for the time being have expressed their intention to invest between $6 million and $12 million into the company in exchange for a 51% stake. If everything goes according to plan, the deal should be closed before the end of Q1 of 2016.

Thanks to this announcement CDNL managed to more than double its price and it was only stopped by the closing bell at $0.009 per share. People seem to be pretty excited about the news and most of them reckon that breaking out of the sub-penny levels again should be a walk in the park.

That might just turn out to be the case. Even so, there are a few things worth bearing in mind.

Yesterday’s press release told us that there can be no assurance around the completion of the deal with the mysterious Chinese firm. While retail investors are waiting for a confirmation, others might be profiting from the sudden increase in trading volumes.

During Q2 alone, CDNL issued a few convertible notes with the principal amount of around $142 thousand. They can all be turned into common stock at discounts ranging from 25% to 50%. These were added to some previously outstanding toxic debt which carries similar conversion provisions.

In other words, the threat of a large number of discounted shares hitting the open market is definitely there. It shouldn’t be ignored.

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