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While Investors Focus On The Wrong Thing, Skyline Medical Inc (NASDAQ:SKLN) Is Reversing To The Upside

While Investors Focus On The Wrong Thing, Skyline Medical Inc (NASDAQ:SKLN) Is Reversing To The Upside
Written by
Chris Sandburg
Published on
October 7, 2016
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Skyline Medical Inc (NASDAQ:SKLN) just took another 5% hit. The company is down nearly 95% year to date, and more than 97% on 2016 highs. The vast majority of the recent pressure derives from a reverse split proposal, and the subsequent shareholder meeting that set up shareholders to discuss and vote on the proposal.We think that much of this downside pressure is unfounded, and that this might be a great opportunity to get in ahead of a recovery.Before we get in to that, and for those not familiar with the company, here's a quick introduction.Skyline is a medical devices company with one primary focus – the collection and disposal of fluids that derive from surgical procedures. The current process involves putting these sorts of fluids into canisters, which then require transport via carts and evacuated bottles, and – end of the line – end up in landfills.It's pretty difficult to explain how much of an impact the product has on current procedures. There's a video here that does a pretty good job. Basically, the current system is messy, inefficient (staff have to wheel canisters full of surgical fluid in and out of theater) and can be dangerous – disposal carries with it a risk of contamination. Skyline's system, called Streamway, is essentially just one tube that goes direct from the patient to a wall mounted system, which filters the fluid and sends it direct to the drain. It pretty much eliminates risk contamination.Anyway. We're not here to sell the system. It's a quality product, but there's no point in having a quality product without the sales staff to push it for you – especially in the medical device space, where the sales path is pretty long.Which brings us back to the shareholder meeting.Skyline needs to raise capital, so it can employ a team or two of sales people (who, according to management on a recent conference call, are going to target New York and Tampa). There are a number of strong leads in place, including a joint venture with Electric On-Ramp that will provide access to a potential $550 million in US Federal government funds, and a company management lead that could provide access to more than 200 government owned institutions (as discussed on this call), which are going to bring the company a degree of positive news flow across the coming couple of quarters.Again, however, these can't be targeted with current cash on hand.So the company is trying to get a reverse split approved, not because it wants to reverse split, but because it wants to raise cash over the next few months to start collecting revenues on the product. A reverse split approval will allow it to go to NASDAQ with a plan that is basically guaranteed acceptance from the exchange, which will buy it 180 days of valuable time to get a positive news flow going, and get its stock back above the magic dollar mark for a ten-day period. Without the plan (and the reverse split approval is almost certainly going to be necessary if this plan is to be effective), Skyline would be delisted and wouldn’t be able to raise anywhere near the cash it needs because it would be trading OTC.That’s the point here. The company won't need to RS if it can execute on it's sales strategy. It just needed approval so NASDAQ knows that, worst case scenario, it could if it needed to. Further, it's the capital raise that investors should have focused on, not the RS. The RS approval is just a conduit to the (in this instance, very much necessary) dilution and raise.So where are we know? Well, the RS and the dilution got approved, so the company is now in the stage we described above – looking to raise some funds and hire a sales team to go collect revenue.This is the best case scenario outcome for a company that has derailed, but is now very much into the process of getting back on track.We forecast that the positive news stream will start flowing this month, and that the company will start to reverse in fortune on the developments.Subscribe to our newsletter and we will bring you more of these sorts of reversal opportunities going forward!Disclosure: We have no position in SKLN and have not been compensated for this article.

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