SOLID CONTROLS INC COM STK USD0.05 (OTCMKTS:SLDC) Oversold And Due For A Bounce

SOLID CONTROLS INC COM STK USD0.05 (OTCMKTS:SLDC), announced that it will be entering into the exciting cannabis industry. In this piece, we will provide all the information given by SLDC regarding its new project and assess whether the company is financially equipped for this new venture. Have a look at the share price spike and subsequent reversal.SourceBusiness - New ModelSolid Controls Inc. is a very old company, founded on April 1, 1968 in the State of Minnesota. The company used to design and manufacture integrated electronic machine controls for the plastics industry. Since it has recently announced that it is changing its business objective to operate in the medical cannabis industry, so we will focus only on the new strategic plan.Source: businessinsider.comOn July 17, 2017, Solid Controls Inc. noted that it will focus on the rapidly expanding market for organic medical cannabis. John Stovers, President and CEO of Solid Controls, explained in following words:

"We plan to grow with integrity and a commitment to our patients to produce the highest quality medication possible. We are focused on quality over quantity and aim to meet the growing demand for premium medical cannabis from patients looking for certified organic products that are free from all contaminants." Source

We are used to hearing the same arguments from cannabis producers. Why is SLDC going to be different? According to the same announcement, Solid Controls "will use soil without the use of any chemicals with each stage of the growing process tended by hand", which seems to be an innovative practice. Additionally, irradiation and cold pasteurization are not required to ensure purity. Furthermore, it has plans to develop additional "proprietary organic strains of medical marijuana" and is planning to start preclinical studies to be able to launch multiple clinical trials in 2018. The following was noted about the cannabis industry:

"The global market for legal/regulated cannabis is enormous and this ‘Green Rush’ shows no sign of slowing down. Recently published cannabis market research has stated that by 2020, North American marijuana sales are expected to surpass $21.0 billion with global markets expected to reach $140.0 billion. As overall demand increases and marijuana laws continue to liberalize, Solid Controls will seek to expand its position around the globe." Source

So, what is going to happen now? In our opinion, we need to be alert from now on, as the company said that new information will be released "over the next several weeks."Financial SituationHas the company gas to commence this new venture? We went to check the financial statements to understand the financial state of SLDC. We found the following assets:Cash And Cash Equivalents (All numbers in thousands)---Short Term Investments---Net Receivables1.1572.4831.328Inventory8.7625.3997.497Other Current Assets---Total Current Assets9.9197.8828.825Long Term Investments---Property Plant and Equipment183183183Goodwill---Intangible Assets---Accumulated Amortization---Other Assets---Deferred Long Term Asset Charges---Total Assets192.919190.882191.825Last three Annual reports (Source)Additionally, the following liabilities were found. Remark that the net asset value is positive:Accounts Payable (All numbers in thousands)31.70539.46828.25Short/Current Long Term Debt40.540.540.5Other Current Liabilities---Total Current Liabilities72.20579.96868.75Long Term Debt---Other Liabilities---Deferred Long Term Liability Charges---Minority Interest---Negative Goodwill---Total Liabilities72.20579.96868.75Last three Annual reports (Source)We could not read in the announcement whether the company will continue to operate its previous activities. We believe that it may be a great idea. The company has a large amount of inventory that could be sold to finance the new cannabis operations. If the company does not intend to do so, a capital increase could be another idea as the company has no convertible securities.No Convertibles debt and no convertible securities - Risk dilution is lowAccording to the annual report, the company did not issue convertible securities to anybody. This is a great news, as it means that there's no dilution risk. Dilution risk is usually a big concern in the OTC Markets, as it reduces the equity value when new shares are issued to convertible security holders. The following is the debt issued by the company. Note that there are no convertible debt features:

- "On February 6, 2013 Solid Controls Inc. signed a Promissory Note with Patron West Inc. in the amount of $16,500. The Promissory Note is non-interest bearing and Due on Demand. As at March 31, 2015 the balance of Note Payable is $16,500. 2.- On January 21, 2015 Solid Controls Inc. signed a Promissory Note with Petou Financial Management Corp. in the amount of $24,000. The Promissory Note is non-interest bearing and Due on Demand with an outstanding balance of $4000." Source

Share price decline on July 31, 2017 - Attorney Letter with Respect to Current InformationSourceOn July 31, 2017, the market received a letter from an attorney, who claimed that the firm had provided adequate information to the OTC Markets Exchange. This is what you need to know:

"The public and OTC Markets may rely on the above in determining whether Solid Controls, Inc. has made adequate current information publicly available within the meaning of Rule 144(c)(2) of the Securities Act of 1933. However, the information which is concurrently being uploaded and published via OTC Disclosure and News Service constitutes adequate current public information" Source

Is this good for the company? Yes, it is. It means that SLDC is in compliance with the Rule 144(c)(2) of the Securities Act of 1933. According to our experience, the market tends to appreciate these types of letters. The share price did not collapse as a result of this letter. So, what happened in this case? In our opinion, either the market did not fully comprehend the letter, or some market participants decided to close their position to profit from the previous share price increase. Additionally, the liquidity in the stock is limited that when shareholders sell big stakes, the share price can move quite a bit. We don't really believe that the decline is justified. Also, we expect the company to explain what's going on soon. We need to be alert.ConclusionThere are several good facts to note in SLDC. First of all, the company is entering into a the fast-growing cannabis space. Additionally, it is promising innovative ideas that were valued by the market. Is the company financially prepared to launch the new project? In our opinion, the inventory will need to be sold to pay the new operations. The net asset value is positive, thus the directors will be able to extract money from the previous business. This is good news. Additionally, in our opinion, the fact that the company did not issue warrants, convertible debt, or convertible preferred shares is a big positive here in OTC land. Finally, we need to be alert as the company may put out soon what caused the unjustified share price decline this week. The share price may move quite a bit if the company's explanation calms the market.We will be updating our subscribers as soon as we know more. For the latest updates on SLDC, sign up below!Image courtesy of Bruno Malkaviano via FlickrDisclosure: We have no position in SLDC and have not been compensated for this article.