Great Basin Scientific, Inc. (NASDAQ:GBSN) is a firm that has numerous red flags and it seems unlikely that the company would be able to eliminate them anytime soon. Over the past year, it has closed three reverse stock splits in order to meet NASDAQ compliance notifications.

Reverse splits

The first reverse split for conducted after a year post its Initial Public Offering. In December 2015. Great Basin closed a 1:60 reverse. Just three months later, in March 2016, the company conducted another reverse split at a rate of 1:35. It didn’t stop here, as the third reverse split came after six months at a rate of 1:80. During the same period, stock’s short interest skyrocketed from around 100,000 shares to more than 4.2 million shares.

The underlying problems shoots from a faulty business model. Great Basin took a hint from the razor and printer business in advancing its model. The firm offers its machines to clinics and hospitals at no cost, however, it levies charges for the testing constituents.

The performance

Great Basin has viable offerings that are FDA approved and currently made available for sale in the United States and Europe. There is no extensive discussion on the quality of the offerings, but the expenses to produce the assays have not touched even breakeven point. Due to the prevailing costs, the firm has been losing money virtually since inception. The consequence has been the descent of the firm to a market cap of approximately $4 million with assets of $18 million, liabilities of $87 million, and shareholder equity of -$60 million. Overall, the total losses stand at more than $175 million.

The reverse splits completed by Great Basin has made the shareholders lose their investment. Toxic financing leads to a win-win-lose situation. The funds recorded from the sales fails to even cover the production cost. While there is immense pressure on the equity right now, only risk-takers should think of investing in the stocks. There are many big problems surrounding the firm, which may result in increased dilution for investors. However, rumors of a takeover could direct the stock significantly higher.