- Low float play
- Top 10 rated Reg CF portals
- CEO funding company and taking action
- Increased asset values with $3-7 million projected revenue
- Equity in 3 CrowdFunding Portals, Fundanna, CryptoLaun.ch & TruCrowd
Investors in Digital Asset Money Network (DATI) are starting to find out that there appears to be a hidden agenda behind the recent price slide over the past quarter. Either bona fide shorts or naked shorts continue to drive the price lower. According to the filings “the company agreed to not issue any securities below a conversion price or cost basis of $.35 without a waiver from all of the Company’s debt holders.” To quote founder Ajene Watson “toxic dilution – cannot easily exist.” Investors should be aware that any stock sold below $.35 is being sold at a loss. What further complicates the story is that the float has not changed in the past six months and is still sitting at 3.2 million. Which begs the question if note holders aren’t converting and based on an informal poll only 15 shareholders have over 50k shares of stock, who is left to sell?
Price erosion on the stock started in August with a slow grind lower, eventually touching a low of $.30/share the beginning of September. The stock rebounded nicely in Sept with good volume pushing it to $.74. Then, at the end of September and the beginning of October ruthless short selling plagued the stock on heavy volume eventually breaking the stocks $.35 floor. It is important to follow the green line that starts from the peak price in August. This is the Volume Weighted Average Price (VWAP) line. When price is below the VWAP it tells market participants there is heavy accumulation. When price is above the VWAP it shows heavy selling. DATI has been well below this line for some time indicating a massive period of accumulation. The stock dribbled down to nil volume where no bids were getting filled. No one was left to sell. On December 3, 2018 buying came in and reversed the direction of the stock on major volume pushing it well through the 50 day moving average. Recent short reports confirm the short selling.
According to the short report in October the stock saw 3 peak days with 90% of the volume being shorted and those were high volume days. With just a few up days in the month of October it was clear that the shorts had an agenda.
Low Floater Play
DATI has about 3.2 million shares in the float or held at Deliver Transfer Clearing Corporation (DTCC). Given the trading volumes and the volatility its not hard to surmise the the trading float, a subset of the available float, is a multiple of the maximum volume traded on a day it doubled in value. That means about 2X the max volume of 242.5K traded on Tuesday is about 500K which represent the tradable float. Traders on the OTC typically like to sell once they double their money. They normally take half their position off the table and use house money. This is how high volume days afford us insight into the tradable float of a stock.
Founder Battles Back
After seeing his stock go down almost every day in October founder Ajene Watson took to social media in a heart felt blog posting to explain that this volatility would not deter him from his focus. The picture of him looking at the price of his stock dropping is priceless. You could see the disdain at what was happening and the resolve to do something about it all in one expression. His take was that “a smooth sea never made a skilled sailor” and that like Jeff Bezos from Amazon (AMZN) his stock price was disconnected from what the company was doing on a daily basis. Watson with extreme candor said “it is a real understatement to say that the stock is getting the crap kicked out of it.” Then he unequivocally states “no newly issued shares, not a single newly issued share of common stock, can be issued to any person priced under the floor price in the normal course of business.” This means that executive, consultant, or vendor payments can never be issued below $.35. He goes on to recognize that the stock is below the floor price and instead of issuing stock DATI announced a repurchase of stock at $1.00.share over 3 times the market price. Besides the share repurchase which reduces dilution he injected almos $150K into DATI in the last quarter. He closes by saying “I have no plans of letting up. Neither does the team at DigitalAMN….I certainly will not accept nor be bullied into any deal, from anyone that does not suit what my team and I are attempting to build at DATI. NO MATTER WHAT PRICE THE STOCK IS.”
Value Proposition – Funding Portals
There is a scarcity of funding portals. It takes a lengthy process to get approval and the application is subject to vetting by both the SEC and FINRA. Only FINRA can sanction a Regulation CF funding portal. There are currently only 47 funding portals sanctioned by FINRA in the World. The top platforms are Wefunder, StartEngine, SeedInvest, and NextSeed. TruCrowd made the top 10 list. In order to have a portal a robust compliance department is a must and the portal must follow a strict set of rules and procedures. In addition, the portals need to have relationships with banks, broker-dealers, clearing corporations, service bureaus, escrow agents, transfer agents just for their application. TruCrowd placed in the top 5 for the average raise per deal. In 2016 the crowd funding business was estimated at $21.77 billion and growing at 10.4% CAGR. Assuming DATI through trucrowd can capture only 1% of the market share that puts a value of the funding portal at $218 Million. There is a huge valuation gap from the from the $5.0 million dollar market cap of DATI at $.25. $1.00 where the last deal was struck which means that the private valuation of DATI is likely to come in at $24 million given the 24.2 million shares outstanding.
Highly Focused Portals
The most developed portal is TruCrowd. On its books it currently has seven deals at various stages of completion.
|Streaming Television Inc||2,475.00||9|
|Twin Bay Hop Farms||$35,600.00||6|
Whether the company completes the offering or not DATI will get about a 6% fee. This means based on pre-money valuation the company has earned approximately $1.854 million in stock. As a rule of thumb there is a 2x multiplier to the amount of funding they raise.
Fundanna is a portal highly specific to the marijuana space. Since Canada went legal the funding interest has ticked up.
|Transatlantic Real Estate||$753,000.00||3|
|Gulf Coast Canna||$257,985.00||8.1|
|Randall and Sons||$25.428.00||2.3|
On less deals the company has raised more money than the TruCrowd portal. Assuming the same percentage of 6% of the pre-money valuation they snagged another $924K of stock.
The third portal is called CryptoLaunch which is just getting started.
|Olive’s BFF LLC||$9,250.00|
|Veptas Tech Solutions||81,375.00|
Assuming DATI can onboard 60 companies which are either direct clients of DATI or through one of the three crowdfunding portals. The company expects to generate between $3-7 million in just fee income in addition to the equity they keep accumulating. One of their first investments was in Vezt Inc. This is a music royalty sharing app which operates on 2 continents and allows artists a way to sell its rights to future song direct to their fan base. The company is expected to have over 100,000 titles in their portfolio. They have achieved critical mass and on their way to profitability. Another DATI portfolio company is WorkDone which recently signed a deal with 3V solutions and aligns them with SAP. TruCrowd is the crown jewel of its portfolio of companies and continues to increase its user base. As the user base grows so does the value of the platform. This is a top 10 platform company according to venture beat and a natural target for consolidation in this sector.
On a technical basis DATI is oversold and it’s not at a sustainable level long term due to the structural nature of the stock. Any sellers under $.35 are taking losses in exchange for liquidity. Shorts need some sort of additional supply otherwise they are ending up paying interest on something that isn’t moving. From the CEO’s blog it’s pretty clear the shorts should read his face. There is no dilution coming! There is a very low float which means that should a short covering rally ensue price will move higher very fast. There is no insiders selling and in fact massive insider investment. DATI is buying back stock at $1.00 and the CEO has put $150,000 of his own money into the company to take advantage of new investments. DATI’s portfolio of companies is performing and their strategy is working. This is a classic game of chicken. The shorts need price to grind lower otherwise they may be forced to cover. The longs want price movement or they may sell. The question is who is going to blink first. Based on VWAP any breach of the $.42 level could lead to a short covering rally. This is also the level where investors found a lot of supply coming to market. The shorts are defending this territory with a market maker wall. Any fundamental news or increase in activity at the portals could push a capitulation of the short position. Last time the volume ground to a halt the stock rallied. A lot of eyes are watching DATI. It will be interesting to see how this imbalance resolves itself. Long term investors can feel really good about buying stock below the floor offering as all the companies in DATI’s portfolio are performing well.
Disclosure: PSInvestor has not been compensated for this article, but do hold a LONG position in the company. For our full disclaimer, please click here.