Borislav Tonev

Elite Data Services Inc (OTCBB:DEAC) Chopped in Half

by Borislav Tonev March 4, 2016

On Monday, Elite Data Services Inc (OTCBB:DEAC, DEAC message board) suddenly rose from the dead and in a matter of just three sessions, it managed to run from just over $0.001 per share all the way to $0.0067. An intraday high of more than a penny was also registered on Wednesday which showed everybody that the ticker might be losing steam. A consolidation seemed more than likely. What nobody expected, though, was a 50% crash.

Yet, that's exactly what DEAC did yesterday. 50.9% of the market cap was wiped out and the ticker stopped at a close of $0.0033 per share. So, what exactly is going on?

Nobody can say for sure. There was no immediately obvious reason for the sudden climb and there is no explanation for the terrible drop. The upshot is, however, that many people have thrown their money into DEAC and they have all overlooked a few important things.

When the company announced its entrance into the gaming business last year, its press releases were garnished with quite a few bombastic revenue projections. In reality, however, none of these have come to fruition.

Here's what the latest 10-Q looks like:

  • cash: $7 thousand
  • current assets: $25 thousand
  • current liabilities: $1 million
  • NO revenue
  • quarterly net loss: $516 thousand

No sales were generated during the first nine months of 2015 and there's been no press releases to convince us that anything has changed since the publishing of the report.

That, as always, is only half the problem. At the end of Q3, there was more than $700 thousand worth of notes and debentures convertible at discounts to the market price ranging from 25% to 50%. The chart at the beginning of the article suggests that some of that amount might have been converted already, and unfortunately, it's not the only thing supporting that thesis.

The number of issued and outstanding shares stood at around 25 million back in November, yet, over the last three days alone, investors have traded almost 60 million shares. What's more, the authorized cap was recently raised from 50 million to 500 million, and a 1-for-1,000 reverse split was approved which should be effected within the next seven months.

All in all, the threat of horrific dilution is quite real and underestimating it could be very dangerous indeed.

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