Studio One Media, Inc. (OTCMKTS:SOMD) Cranks Up the Volume
MyStudio Inc and AfterMaster HD Audion Labs Inc are subsidiaries of Studio One Media, Inc. (OTCMKTS:SOMD) and they were both founded by a person called Larry Ryckman. He is still involved with the company and he appears to be quite a famous in the entertainment industry. There’s even a Wikipedia entry dedicated to him. If you take a closer look at the Wiki page, however, you’ll see that Mr. Ryckman was alleged of conducting some illegal wash trades back in 1996. As a result, he was banned from trading in Alberta and a few other Canadian provinces for a period of eighteen years.
This could be enough to scare away some investors, but it would appear that in the case of SOMD, they’re not bothered at all. In fact, the stock performance is nothing short of amazing. Red sessions are few and far in between and over the last thirty-one days alone, the ticker has managed to gain a whopping 64%. During yesterday’s session, SOMD added another 6.3% and it finished the day at $0.84 per share.
It’s not that easy to pinpoint the reason for the relentless surge of interest, but there’s a fair chance that it was caused by a certain contract from the beginning of last month. On October 7, SOMD announced that they have reached a licensing and option agreement which will result in the merger of MyStudio’s operations into an entity called bBooth Inc. This, the company said, should allow them to generate revenues through licensing of their proprietary technologies and it should also let them focus on the development of the AfterMaster operations.
The news is certainly good because, as the latest 10-Q shows, SOMD is not doing particularly well at the moment. Here’s what the company recorded on September 30:
- cash: $323 thousand
- current assets: $333 thousand
- current liabilities: $6.5 million
- quarterly revenues: $29 thousand
- quarterly net loss: $1.5 million
The figures are disappointing and a quick look at the previous filings reveals that things are getting worse by the quarter. SOMD definitely needs a change in direction and the shareholders have the right to hope that the deal with bBooth will help the company climb itself out of the hole that it’s in at the moment.
“Hope”, however, is a crucial word. The 8-K covering the licensing agreement tells us that bBooth is required to pay a total of $1.25 million over the next eighteen months, but at the moment, there can be no guarantees that everything will go without a hitch. And even if it does, $1.25 million might not be enough to fix all of SOMD‘s problems.
As you might have noticed already, the company is burdened with quite a lot of debt and once you take a closer look at the 10-Q, you’ll see that an alarmingly large portion of it is convertible into common shares. Perhaps more worryingly, the conversion rates mean that certain people are getting quite a lot of discounted stock and they are able to set it free on the open market and cash in on the huge profits.
During the third calendar quarter of 2014, for example, SOMD was forced to issue a total of 3,484,074 shares in order to satisfy $356,794 worth of debt which brings the conversion rate down to just over $0.10 per share. Plenty of notes were still outstanding at the end of September and they can all be turned into stock at prices ranging from $0.10 to $0.20 per share.
Now that you’re aware of these facts, you might want to imagine yourself as one of the note holders and contemplate on what you would have done if you were presented with a 740% profit opportunity. Once you’ve done that, you should be able to reach your investment decision.
About forty-five minutes after today’s opening bell, SOMD is sitting at $0.88 (4.76% in the green).
