Shocking investors with a downturn of roughly 108% yesterday, Energy Management International, Inc. (OTC:ENMI) may have broken some hearts and accounts. But just nine days ago, when our last article on ENMI came out, this stock was an OTC darling with a promising merger outlook. So what happened?
Form 10 Disclosure Details
Energy Management International Inc. released a Form 10 disclosure on August 4th announcing the Board of Directors agreement to a 5:1 reverse split pending FINRA approval. The news hit hard for investors who were not anticipating share consolidation. Essentially, the reverse split will reduce the authorized shares from 4.45 billion to 890 million.
While it does not affect the company’s overall value, the market cap will reflect the reduced shares and new share price. The price per share will also be 5 times greater than its pre-consolidation price, however it would be an artificial increase considering ENMI has not materially generated this additional value. For this reason, reverse splits are usually used in sticky situations to prop up the share price and can be an indication of other difficulties within the company.
News of the reverse split triggered a major sell-off pushing the stock through its previous support of ($.1211 $.0898 $.0752) to its current value of $.0353. Now, it’s new support could be closer to ($.0240 $.0056).
A reverse split may not be ideal for many investors, but a sell off of that size was likely an overreaction that could rebound to a middle ground support with time – especially if a merger materializes. On this note, when pursuing a merger, reverse splits help cement the minimum price requirement for uplisting and can also attract larger investors interested in stocks above a certain market value.
On August 4th, ENMI also revealed its new business plan and core product: the Indicaid Covid-19 Rapid Antigen Test. Authorized, marketed, and manufactured for the Hong Kong market, the tester has been in use since October 2020 and makes up 90% of Hong Kong’s rapid antigen testing.
With results in 20 minutes, Indicaid clearly has potential for expansion into other markets where it would likely face lower import regulations because it is categorized as a hygienic product. For this reason, ENMI is seeking out partnerships with foreign distributors while planning for future, opportunistic acquisitions.
The Future Ahead
Understanding the reasons for this reverse split is key to the company’s future. But for now, ENMI has stated that the current cash reserves and other sources of liquidity are enough to sustain operations for at least the next 12 months. The product’s success is also tied to the COVID-19 pandemic in Hong Kong and China, which ENMI expects will require testing for the next two years or more as travellers are continually required to conduct pre-screening before entry.
With a market cap of almost $147 million, ENMI has reached a volume of about 35 million due to yesterday’s selloff. In comparison its average volume is closer to 2 million. While it is currently trading at $.0353, with reassurance from the company and progress on product distribution the share could return to $.08 in the coming weeks.
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