Just As I Predicted — SMSI S-3 Released :^)

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Accordingly, this document should not be construed as an endorsement or recommendation of the companies or securities discussed herein. I am not an investment advisor and this is not an investment thesis. It is merely one part of the story, which I present for debate in hopes of determining all risks and upside potential. The disclosure at the end of this piece is critical to understanding the content and context of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.

My last post (Fri around 3:30PM ET) predicted that SMSI would file an S-3 (Registration Statement) with the SEC imminently. Sure enough, it was released two hours later (just before 6PM on Friday).

For those who don’t understand S-3 filings, the Registration Statement related to SMSI’s last round of funding. It’s not a new offering. SMSI has tons of cash and doesn’t need more. Besides, Founder/CEO Bill Smith owns 17% of the outstanding common stock and you can bet that he doesn’t want it diluted any more than necessary to get the job done.

So, don’t be fooled by fear mongers, shorts, or people who simply don’t know what they’re talking about. This filing is just a formality pursuant to its May 3 financing.

The impact of these filings have to be taken on a case-by-case basis. In this case, the 3.2 million registered shares were purchased at $2.21. Selling them below that level (which is where we sit right now) would produce a loss for the “selling shareholders” listed in the S-3.

The only reason to do that is to keep the warrants (which require the holders to pay $2.11 to obtain common shares, so that’s not profitable for them either!). However, over 2 million shares were shorted ahead of Friday’s S-3. That represents a significant amount of hedging. In fact, if you read my Friday post, you know that the shorting activity started slowing down a couple weeks ago.

So, that’s the 6.4M shares listed in the S-3… 3.2M shares purchased at $2.21 and 3.2M warrants that require the holders to pay $2.11 for shares. Obviously, it’s silly to think that we’re going to see any notable selling from those holders, especially since the shorting (to hedge their positions) occurred earlier in the month.

In other words, this S-3 is nothing like the last one they filed. Institutional / professional investors have surely figured this out, so it’s important for you retail investors to understand. Otherwise, you might panic out of your shares and end up buying them back at a higher price (or worse, not at all).

There are several reasons to believe that this is a risk to anyone who sells their stock today.

For one, I know about multiple investors who have been intentionally keeping their stake below 5% of SMSI’s outstanding shares (because owning 5% triggers an SEC filing requirement). With this S-3, the share count has officially been raised, enabling those investors to buy an additional 150,000+ shares each without having to file with the SEC.

If they do, the effective float will shrink even further than it already has. As it stands, the shares will soon start acting violently to any spike in demand (as I discussed in a prior post). Indeed, several professionals and institutions have been buying (one of my last posts covered that topic too) knowing this S-3 was coming.

So, that should tell you something.

Basically, if every S-3 was bearish, every stock would go down before they get filed. As I’ve been preaching for years, each event has to be analyzed separately. In this case, I knew it was coming, wrote about it and was BUYING the stock on Friday afternoon.

In short, this is a non-event, for the reasons outlined in my last post and should be treated as such.

OK, enough with the public service message. I wasn’t even going to bring it up, but I saw some misinformation being spread this weekend and hate seeing retail investors getting scared out of a good investment (like I used to).

Onward…

FYI, I personally think it was smart for SMSI to file the S-3 a little early (it wasn’t due until June 2). Getting it out on Friday afternoon gives everyone the weekend to realize what it is. Not only that, but they’ll be presenting at the LD Micro conference this week and meeting one-on-one with new/existing investors for much of the week.

I’ll be meeting with them this morning (before most anyone else). So, stay tuned for my write-up and you’ll have the scoop before the ~20 institutional investors who’ll be meeting them after me. Could be a great catalyst for the stock.

Truth be told, I bumped into Mr. Smith and two of the company’s directors last night. We traded a few notes and it’s now clear to me that the Safe & Found roll-out is going even better than I thought.

I’ll get more details this morning (Pacific time).

FYI, this weekend I visited some Sprint stores (they say Safe & Found is being well-received) and even stopped by SMSI’s headquarters (which was just down the road from one of the Sprint stores) for a quick photo…

 

 

 

 

#homework

Bottom Line: I’m pleased with how the financing and registration process was handled.

Aside from the conference, our next trading data point comes at 6PM on June 11 when the short interest data for May gets released. Anything over 2 million shares would be bullish. I expect something closer to 2.2 million.

Either way, I’m excited to have the S-3 behind us. Now we can all focus on the fundamentals and this week’s conference (especially with the Sprint roll-out finally kicking into high gear).

BTW, based on my due diligence, I expect some news about that to be released between now and Wednesday. I’ll let you know when it comes ;^)

Should be a great month.

Cheers!

 

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Disclosures / Disclaimers: I am long SMSI. However, this is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.

I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.

I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter.  Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.

I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

15 thoughts on “Just As I Predicted — SMSI S-3 Released :^)

    1. Yup. Just shaking out the weak hands that don’t know how to analyze an S-3. After bumping into 3 of them into them last night, I can see that they’re here in force, confident, and armed with bullish info. I bought more this AM, even ahead of my meeting.

      Liked by 1 person

  1. Hey Mark! If you are still there tomorrow would you mind watching the Nfusz presentation at track 1 @ 6:15? I’ve been taking profits from swinging that company’s crazy PPS ride this year to build my position in SMSI (trying to do it again too). Just curious to see if you think it’s a pump and dump, or if they have something legitimate going. The CEO talks about uplisting out of OTC like CELH did. I’ve been planning to try their product for my wife’s business but have gotten swamped with my day job and side job. If not no big deal.

    Like

    1. $SMSI nobody can say I didn’t warn them. My one on one with them went FANTASTICALLY! Details later. I’m booked back to back w/more companies.

      The presentation is not the catalyst. The catalyst is the one on one meetings they are having with investors this week. Mostly after they present.

      Liked by 1 person

  2. Great work Mark. Appreciate all the investigative research you are doing. The table has been set and now it’s performance time. In this phase, we need to keep a close eye on adoption based on app rankings and other channel checks. Locked and loaded.

    Liked by 1 person

    1. …and NEW customers. That will be even more powerful. They will grow along multiple dimensions 1) ramp Sprint, 2) ramp new customers, 3) expand functionality of SafePath, 4) rebound of their other businesses 🙌🏼

      Thanks Ben!

      Liked by 2 people

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