Submitted by thicc_dads_club t3_zmx4i9 in wallstreetbets
The Metamaterials / Torchlight / Next Bridge / Pole Perfect saga is the dumbest retail frenzy since the apes took over the treehouse. But within this objectively funny tale of idiots losing all their money is a confusing history of reverse mergers, spin-offs, and unlisted public companies.
If you're not aware, the premise was that the Evil Hedge Funds, with the assistance of the Evil Market Makers, had established a very large and very naked (like ur mom lol) short position in Metamaterials Torchlight Preferred Shares (MMTLP). MMTLP shares were set to get a large dividend, which would trigger a short squeeze and bring about a global financial reckoning and blah blah blah you know the drill. As you can probably guess, everybody that went balls deep in MMTLP is now broke.
This is a fuckin' novel so if you read like a child maybe just wait for the audiobook.
Technical stuff
Before we can look at the complicated timeline that led to MMTLP apes gargling testes for rent money, we need to understand the differences between a private company, an unlisted public company, and a listed public company.
A private company is a company that isn't registered with the SEC. Its financial reports are not public. Shares (if the company chooses to use shares to represent ownership) are usually restricted and tracked internally. The company can't offer shares for sale to the public and shares aren't listed on stock exchanges or dealt OTC.
An unlisted public company is a company that is registered with the SEC and releases public financial reports. Because of this registration and its compliance with SEC regulations, it can offer shares for sale to the public. However, it isn't listed on any stock exchanges nor is it dealt OTC because (a) it hasn't made a public offering so there's no liquid shares floating around and (b) the company (or their transfer agent, if they have one) isn't integrated with any clearing houses so share ownership changes are person-to-person.
A listed public company is a company that is registered with the SEC and releases public financial reports, can and does offer shares for sale to the public, has a transfer agent that is integrated with clearing houses, and is either listed on a stock exchange or is dealt OTC. It has a sizeable volume of liquid shares and there are probably market makers willing to quote a bid/ask to potential sellers and buyers at any time.
A private company "goes public" by registering with the SEC, becoming an unlisted public company. Registering with the SEC doesn't magically get a company's shares listed on any stock exchange or dealt by any OTC dealer. To become a listed public company the company must work with a stock exchange or OTC dealer to (a) set up the appropriate facilities for share transaction recording and clearing and (b) meet the stock exchange / OTC listing requirements for volume and price.
Shorting
Shorting a stock just means borrowing shares from a shareholder and selling them to somebody else. Generally the lender will want regular interest payments from the short seller / borrower, since while their shares are loaned out they don't have the rights that go with those shares (like voting on corporate actions). The lender will probably also want the short seller / borrower to pay the lender the value of any dividends that the company might issue while their shares are lent out. (Lenders are usually ok with giving up voting rights in exchange for interest payments, but not ok with missing out on dividends.) The lender probably also wants the right to demand their shares back at any time.
Private companies essentially cannot be shorted because there is no facility or procedures by which shares can be lent, nor is there any mechanism by which lent shares can be offered for sale. Shares in private companies are usually pretty restricted. There's also no way you can "accidentally" end up short shares of a private company. For example, when a public company goes private through a buy-out, lenders recall their lent-out shares (so they can be sold to the private buyer) which forces the short seller to rebuy the borrowed/sold shares.
On the other hand, standardized contracts and systems exist to facilitate and track lending and short selling of shares of listed public companies. When you short a listed public company you don't have to work out the details of the loan with the person you're borrowing from; it's all standardized and automated. It's also possible to "accidentally" become short shares of a listed public company. For example, you might be assigned on a call option.
But what about unlisted public companies? There's no practical way to short them, because they aren't integrated with any of those standard contracts or systems that exist to facilitate shorting. But theoretically if you were able to borrow shares from a shareholder you could sell them to the public at a lemonade stand. I don't know what happens if you are "accidentally" short shares of an unlisted public company. This can happen if (foreshadowing) you are short a listed public company and it spins off a subsidiary as an unlisted public company.
The history of pole dancing
The year is 2007. The first iPhone and the last Harry Potter book are released. On October 30, Tammy Skalko (Florida native and total MILF) incorporates Pole Perfect Studios, Inc. The company is based in Longwood, Florida, incorporated in Nevada, and intends to develop pole dancing fitness studios. In May 2008 Pole Perfect registers with the SEC and becomes an unlisted public company. The company has about 3.75M shares. Most are held by Tammy Skalko and two associates (James Beshara and Harry Stone) but they also directly sell about 500k shares to 40 shareholders. The company starts with about $15k in cash and no other assets.
By September 2008 Pole Perfect is listed on OTCBB with ticker PPFT, which enables OTC dealers to make a market. However, since this is a small company with no assets or revenue, there isn't actually any trading volume.
Nothing happens in 2009 and most of 2010. In October 2010 Pole Perfect has less than a thousand bucks in cash, no assets, and no revenue. There has been neglible trading OTC and as a result, OTCBB has delisted PPFT. The majority of the companies shares are held by Skalko, Beshara, and Stone. It would seem that, like many small businesses, Pole Perfect isn't going to work out.
Meanwhile, in June 1010, Thomas Lapinksi founds Torchlight, a private oil and gas exploration company with a partial interest in a single potential oil field in Texas, the Marcelina Creek Field Development. Torchlight is incorporated in Nevada. Torchlight shares are held entirely by Lapinski, who lives in Texas. Torchlight also has a business consultant in Missouri named John Brda.
Then, in November 2010 a bizarre switch-a-roo happens. Pole Perfect "acquires" Torchlight! The deal is this:
- Pole Perfect issues new shares which are paid to Torchlight.
- Pole Perfect assumes Torchlight's assets and business plans.
- Skalko, Beshara, and Stone are paid $270k (combined) to give up all their shares of Pole Perfect and step out of the company entirely.
- Lapinksi and Brda take over leadership of Pole Perfect.
- Pole Perfect abandons all existing pole dance studio business plans to pursue Torchlight's business plans.
- The company is renamed Torchlight Energy Resources, Inc.
Essentially Lapinksi and Brda pay $270k to hollow out Pole Perfect and use it as a vessel to take Torchlight public. I have no idea why they would do it this way, since it cost Pole Perfect much less than $270k to go public in the first place. But hey, I'm not a businessman.
Shortly thereafter, Torchlight turns around and gives Tammy Skalko $12k in cash and $50k in stock for consulting services, for some reason.
By February 2011 Torchlight (nee Pole Perfect) is listed again via OTCBB and changes ticker symbol to TRCH. Over the next couple years, Torchlight conducts typical oil and gas exploration business, including leasing some land in Kansas and Oklahoma and drilling exploratory wells. Then, in December 2013 Torchlight becomes listed on NASDAQ. TRCH has arrived! They have about $16.7M in assets (after burning $10M in 2013) and a market cap between $48M and $123M depending on the day.
Oh Canada!
While Tammy Skalko, Thomas Lapinksi, and John Brda are doing accounting magic in the lower 48, something wonderful is happening in Canada.
Metamaterial Technologies Inc., a material science company focused on nanotechnology, is founded in London, England in 2010 but expands and moves to Nova Scotia, Canada, in 2011. I don't know anything about Canadian corporations but presumably they had to fuck a moose or blow a mountie or something. At some point they become tradable on the Canadian Securities Exchange (CSE), one of Canada's three maple syrup stock exchanges, under the ticker MMAX.
When COVID hits, the poutine-eating leadership of Meta decides they would really like to get more exposure to the sweet sweet American dollar by becoming listed on NASDAQ. But that's a time consuming and expensive pain in the ass for a Canadian company. It's much easier to acquire a small US company that's already listed on NASDAQ, hollow it out, and rename it. (Sound familiar?)
So in September 2020, Metamaterial Inc. (at some point they dropped "Technologies" from their name) and Torchlight enter into a Letter of Intent bny which Torchlight will "acquire" the significantly larger Metamaterial. The deal is:
- Torchlight issues a ton of new shares which are paid to Metamaterial. Metamaterial becomes a 75% owner in the combined business, and legacy Torchlight shareholders are diluted 4-to-one.
- Metamaterial assembles a new board to lead the combined company. Torchlight gets to keep one member.
- Metamaterial will sell off all Torchlight assets and abandon all plans to perform oil and gas exploration, and instead pursue Metamaterial's business plans.
- The hollowed out and replaced company will be renamed Meta Materials Inc., change its ticker from TRCH to MMAT, and issue new preferred shares to legacy Torchlight shareholders (Series A Preferred Shares).
- Proceeds of the Torchlight sell-off will be distributed as a dividend to holders of Series A Preferred Shares, and then those preferred shares will be canceled and cease to exist.
For Torchlight to hollow out Pole Perfect all they had to do was pay off Skalko, since Pole Perfect had minimal assets and liabilities. Metamaterial had to do a little more work to do the same thing with Torchlight, since Torchlight is actively traded, has more shareholders, and has considerable assets and liabilities.
The "acquisition" goes through and in June 2021 Torchlight is no more. Meta Materials Inc (MMAT) now trades and issues Series A Preferred Shares to legacy Torchlight holders. This includes John Brda, a major shareholder in TRCH. Meta Materials plans to liquidate Torchlight assets and reward preferred shareholders by year-end 2021.
Things fall apart
Meta Materials makes no effort to restrict the new Series A Preferred Shares, and there's a lot of them out there, so dealers start dealing them OTC under the ticker MMTLP (Meta Materials Torchlight Preferred). Short sellers start shorting MMTLP, predicting that the liquidation of Torchlight assets will result in a smaller dividend than is priced into MMTLP. The short volume grows significantly.
Wherever there's high short interest there's idiots who missed the Gamestop squeeze and are desparate to lose their life savings. An "ape" community springs up in late 2021, based around the thesis that the Torchlight asset sale dividend to be issued to MMTLP holders will cause a short squeeze because (a) shorts will be financially hurt by paying the dividend to their lenders that they'll be liquidated by their brokers and (b) shorts will be forced to close their positions through the cancellation of the shares and there will be a rush for the door as cancellation gets closer.
There's one ape in particular who drinks the Kool Aid, and that's John Brda. Yep, John Brda, the oil and gas consultant who orchestrated the Pole Perfect Studios Inc. reverse merger, is now on Twitter pretending to be a financial guru to idiots who put their life savings into the to-be-liquidated remains of the Torchlight assets he once helped manage.
Unfortunately for the apes, Meta Materials finds that they're having a hard time selling off Torchlight assets. After all, Torchlight wasn't making any money from those oil field developments, so there's probably not a line of speculators waiting to snap them up. In June 2022 Meta Materials reveals that "We may be unable to pay dividends to holders of our Series A Preferred Stock" and says that they may in fact spin off Torchlight assets into a new unlisted public company called Next Bridge Hydrocarbons, Inc.
You might think this would be the nail in the coffin for MMTLP apes - who wants untradable shares in an unlisted public company with worthless assets and no active business? - but you'd be vastly overestimating the brainpower of the average simian.
They double down! Now they're certain that this 1-for-1 ownership swap will cause the short squeeze, because everybody knows you can't be short an unlisted public company so shorts will be forced to close. They also decide that Evil Hedge Funds and Evil Market Makers have colluded to naked short MMTLP and that there is a high volume of counterfeit MMTLP shares that will be revealed when ownership of Next Bridge is distributed and shorts are forced to buy their way out of a mess. And John Brda is right there with them, tweeting links to subreddits and looking for secret messages in his skidmarks.
They're not completely wrong though. As the spin-off date of record of December 12 2022 approaches, short interest declines and the MMTLP price jumps around and sees trading halts. The apes are right that nobody wants to be short when MMTLP is canceled and turn into untradable Next Bridge shares. What they don't realize is that nobody wants to be long either! It's a liquidation party, everybody wants to move their money into stuff that trades.
Endgame part 100
December rolls around and apes fall into one of two camps. Some apes actually plan to hold their MMTLP shares through December 12 and become owners of Next Bridge. They think that maybe the short squeeze won't actually happen until after the spin-off occurs. It's just common sense, after all, that they way to get rich is to hold untradable shares of a failed oil and gas development company. But most think the squeeze is coming just prior to December 12th. As each day passes and the squeeze doesn't squoze, they get more and more jittery, alternating between panick selling at a loss and pricing Lambos (while still looking at a loss). They zoom in and out of ye olde VW chart while the MMTLP price continues to drop as everybody with a functioning frontal lobe closes their positions.
And then, finally, after all this waiting, on Friday December 9th, it happens.
No, no the squeeze, lol, that was never going to happen.
No, it's better than that. FINRA halts all trading of MMTLP indefinitely.
In what is clearly a move to out-troll the SEC's meme stock commercial, FINRA forces all MMTLP shareholders (and all MMTLP shorts) to take the L and be swapped out for Next Bridge shares.
In their own minds, apes were just seconds away from a financial orgasm when FINRA dropped a fucking anvil on their collective nuts.
The apes weren't happy.
- "But I was just about to sell, right as soon as it squeezed!" Doesn't matter, enjoy your Next Bridge shares.
- "This is illegal! I'm going to sue FINRA!" lol
- "You can't be short a private company!" Next Bridge is an unlisted public company, not private.
- "What is this all about? How is this possible?" Better luck with your next stripper pole reverse merger, John!
Fallout
The fallout from this isn't yet clear. Brokers received very little information and instructions about how to process the spin-off, and currently apes are looking at zeroes in their accounts. But eventually they'll end up with shares held by Next Bridge's transfer agent. Whatever money they put into MMTLP is gone; they may get some sort of payout if Next Bridge eventually liquidates its holdings. It's theoretically possible that Next Bridge will one day become tradable, but since the actual operators of Torchlight are not affiliated with Next Bridge there's no reason to think Next Bridge is going to try and operate the unprofitable oil and gas fields. Probably they'll just sit on the assets until ithey can be sold. And that isn't easy, because remember like a hundred pages ago I said that that Torchlight has a partial interest in some of their properties? A partial interest in an unprofitable oil field is not exactly turning heads. It's very possible that these loss-making enterprises were were simply evicted from Meta Materials' books so they can quietly go bankrupt on their own.
There was no measure to force shorts to close, so there are short positions open on MMTLP that will presumably become short positions on Next Bridge. I mentioned earlier that I don't know how short positions on unlisted public companies are handled. I would imagine that the lending shareholders probably want the full rights to their (worthless) shares back, so I wouldn't be surprised if the company issues new shares to directly sell to short sellers, so the few that remain can close their positions and all shareholders have their full rights restored. That would dilute the shares, but there weren't many short sellers that stuck around until December 9th, so maybe it doesn't matter much. So far there's been no information on how this will be handled.
John Brda continues to tweet. MMTLP apes are slowly, reluctantly dragging the goalposts to a fictional universe where they were all in the camp of wanting Next Bridge shares to pass on to their children. Redditors continue to be on the lookout for the next big terrible bet.
So next time you make a bad stock play, your options expire worthless, or you catch your wife with the lawn guy, don't feel bad. You might be an idiot, but at least you've never lost your life savings in untradable shares of a worthless shell company being discharged from a materials science company who became NASDAQ-listed by reverse merging with an oil and gas company who had previously become OTC-listed by reverse merging with a pole dancing studio company. You're not those people.
Edit: Please correct anything here that's wrong. I mean don't blather on about how the financial system is rigged and it can still Go tO tHe MoOn!!11 but if I got something wrong about the timeline or the mechanics of the reverse mergers please let me know.