Micro-cap companies are dying, but the mechanics of their demise remain deeply entertaining. This week featured full liquidations using novelty penny shares to rig a quorum, a federal restraining order against a company already halted by Nasdaq, and a distressed lender installing a shadow dictatorship. Here is what happened.
Origin Materials (ORGN): The Penny Quorum
If you want to liquidate your company but you are worried retail shareholders will not bother opening their proxy emails to establish a quorum, what do you do? Origin Materials figured it out: you sell exactly one share of Series A Junior Preferred Stock to your General Counsel for a single penny. That magical share votes alongside the common stock but automatically scales to match whatever the present common shareholders decide. It replicates the aggregate common stock voting outcome but artificially inflates the turnout to secure a quorum. It worked. Origin is completely winding down, having delisted from Nasdaq on July 2. The board is resigning en masse on July 31, and the stock tumbled 16% in after-hours when the company admitted that "maximizing shareholder value" actually meant turning off the lights and selling the remaining assets.
BioXcel Therapeutics (BTAI): Handing the Keys to Oaktree
There is a fundamental rule of distressed debt: by the tenth time you amend a credit agreement, you no longer run the company. BioXcel Therapeutics entered its Tenth Amendment with Oaktree last week, securing a one-month deferral on a $9 million principal payment. The cost was absolute surrender. Oaktree forced the creation of a strategic process committee with exclusive authority to sell the company, restructure the debt, or file for bankruptcy. The executive team is now operating under a strict 115% budget cap on cash disbursements and a total freeze on compensation changes. They have until July 31 to find a capital solution, but realistically, Oaktree is already driving the bus. The stock is now trading around 82 cents.
Inno Holdings (INHD): Federal Escalation
Usually, when Nasdaq slaps a company with a T12 trading halt, it just means the exchange wants a few questions answered before the market opens. Inno Holdings has been frozen since June 8. On June 25, things escalated from a regulatory annoyance to a full judicial crisis when a federal judge in the Southern District of Texas hit the company with a temporary restraining order following an unnamed plaintiff's complaint. The board formed a special committee of independent directors to investigate unusual trading activity in its own stock. The company claims it is vigorously defending itself, which is a difficult posture to maintain when your shares have not traded in a month and a federal court is intervening in your operations.
Aterian, Inc. (ATER): Please Read Your Proxy Emails
Aterian is trying to sell substantially all of its assets—meaning consumer brands like Squatty Potty and Mueller Living—to Trademark Global for $18 million in cash. It is a massive premium to their recent $6.2 million market cap, and activist David Lazar is waiting in the wings with a $7 million preferred stock investment. Both Glass Lewis and ISS issued reports basically begging shareholders to vote for the deal, pointing out the severe downside risks of doing nothing. But Aterian has a heavily retail shareholder base, which means apathy reigns supreme. They convened their special meeting on July 10, realized they only had 48.65% of shares represented, and immediately adjourned to July 17 to buy time. If you want to survive as a going concern, you first have to convince your shareholders to click a button.
InnSuites Hospitality Trust (IHT): The Technical Auditor Swap
When your auditor slaps a going-concern warning on your financials for two consecutive years, the relationship can get tense. InnSuites just replaced BCRG Group with Simon & Edward LLP. The technical excuse is flawless: S&E simply acquired BCRG's attest business, so the files moved over automatically. The 8-K swears there were no disagreements. Still, shifting auditors in the middle of a going-concern crisis is the accounting equivalent of passing a live grenade, even if the new guy bought the old guy's firm.
What to watch: July 31 is the micro-cap event horizon. BioXcel hits its Oaktree-mandated deadline to either repay the debt or let the lenders pull the Chapter 11 trigger, and Origin Materials sees its board walk out the door for good. Check in on Aterian on July 17 to see if they finally scrape together enough votes to sell the Squatty Potty brand.