Borislav Tonev

Skyline Medical Inc (OTCMKTS:SKLN) Grabs Some Attention

by Borislav Tonev August 27, 2013
SKLN.pngSkyline Medical Inc (OTCMKTS:SKLN, SKLN message board) underwent a name and ticker symbol change less than three weeks ago. A new management team took the helm and they plan on increasing the number of authorized shares as well as reincorporating the enterprise in Delaware. If you have been around penny stocks for some time, you'd probably know that all these actions are often prerequisites for a promotional campaign and, sure enough, when you check out our database, you'll see that Penny Stock Prophet, Buzz Stocks and Penny Pick Finders have sent us a total of five emails before the start of yesterday's trading session. That said, SKLN doesn't appear to be the typical pumped small cap venture.

For one, they have been on the market for quite a while, they have developed a product (which is FDA-cleared), they have managed to commercialize it and although they changed the name, their plan is to stick with the clever system for the collection and disposal of post-operative fluids. In addition to this, while the newsletters are trying to raise some awareness around the stock, their disclaimers say that they are doing it for free and the company itself doesn't seem too keen on issuing optimistic press releases every now and then in an effort to boost the price artificially. All in all, while there is still a promotion (which should always be kept in mind when contemplating a potential investment), SKLN does appear to be a more solid venture compare to other pumped small cap enterprises like Blue Fire Equipment Corp (OTCMKTS:BLFR) and The Alkaline Water Co., Inc. (OTCBB:WTER). Is it all good news, though?

Well, as is often the case with penny stocks, the shareholders are not out of the woods just yet. The latest 10-Q, for example, contains some optimistic figures, but it also sports some disturbing facts. Here's a picture of SKLN's financial state as of June 30:

  • cash: $137 thousand
  • current assets: $382 thousand
  • current liabilities: $3.3 million
  • quarterly revenue: $150 thousand
  • quarterly net loss: $1.1 million

As the emails are insistent on pointing out, when you compare the numbers above with the ones found in the report for the same period of 2012, you'll see that the sales have increased by about 500%, but it's also pretty obvious that profitability is still a distant dream. The working capital deficit is also substantial and although the report says that SKLN have pending sales orders for forty-three STREAMWAY ® FMS systems, it's not clear whether they will be enough to cover the rather huge liabilities.

If the answer is "no", the shareholders could be in for some heavy dilution as most of the notes that the company has issued are convertible into common stock, in some cases, at a rate that could give the note holders an opportunity for some quick and easy money. The fact that SKLN want to increase the number of authorized shares could also serve as a hint that they might not be able to pay off all the debt in cash.

SKLN_logo.pngAnother interesting piece of information is found in the Risk Factors section of the 10-Q. According to it, the issuance of SKLN stock throughout the years has been at odds with The Minnesota Business Act which provides the shareholders of each and every public company with certain preemptive rights that have apparently been violated. In order to avoid similar issues in the future, the management team is seeking the stockholders' approval to reincorporate the enterprise in Delaware, but it is still possible for former and current SKLN investors to seek remedies for the violation of their rights which, as you might have guessed, could adversely affect the company's development and financial situation.

There's no guarantee that this will happen, of course, but still, being aware of all the factors that could depress the price is absolutely crucial when contemplating an investment in any penny stock.

Comments 1

1. Guest
August 27, 2013, 02:28PM

Quotes There is no money damage to any shareholders, and no one will ever sue, as a result of this inadvertent violation of a technical Minnesota law which was passed to protect shareholders in private companies. No harm no foul. Our current management inherited this, but it is no great shakes. Delaware and most other states make management's actions legal. This is not something which can hinder the Streamway, at all.

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