Troika Media (NASDAQ:TRKA) stock has been one of the breakout stocks of 2023, with shares up by over 80% year-to-date. Earlier this week, the company announced that it “intends” to enter into negotiations with the original buyers of its Series E preferred stock to waive certain provisions of the Securities Purchase Agreement (SPA) pertaining to the shares. The “certain provisions” were not immediately disclosed.
The company also seeks to settle the buyers’ claims for liquidated damages under the Registration Rights Agreement (RRA). Troika warned, “There can be no assurance as to whether, when or on what terms any such agreement may be reached.”
The SPA signed by Troika in March of last year stipulates that the buyers would purchase 500,000 shares of Series E preferred stock. These shares would be immediately convertible into 33.33 million shares of common stock priced at $1.50 a piece, which would dilute existing shareholders.
Could TRKA Stock See a Short Squeeze?
As of Feb. 28, there were 21.47 million shares of TRKA sold short with a combined value of $8.43 million. That’s equivalent to a short interest as a percentage of the float of 11.9%. Generally, a stock with a short interest above 10% is considered high. Still, Troika’s recent earnings report for the six months that ended Dec. 31 has resulted in a steady decline for the company.
The report showed revenue of $187.9 million, up by 1,125% year-over-year. However, shares outstanding also increased dramatically to 344 million from 64 million in November of 2022. InvestorPlace analyst Tom Yeung notes that this may be because creditor Blue Torch Finance exercised 266,666,640 warrants without filing ownership change updates to the Securities and Exchange Commission (SEC). Because of the significant increase in outstanding shares, Yeung dropped his price target to 54 cents, which is conditional on the possibility that Blue Torch exercised its warrants. “Perhaps it’s all a big misunderstanding. Troika’s auditors could have accidentally included unexercised warrants in their share counts. That would explain why the firm failed to report such a material change to the SEC,” explained Yeung.
Now, all eyes are on the not yet disclosed provisions that Troika seeks to waive. Ideally, shareholders would want less dilution, as it seems to be a major downer for the company.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.