NXTH and The Shaq: A Sweet-and-Sour Deal?
by Melissa Davis - 1/4/2010 8:14:05 AM
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When NXT Nutritionals (NXTH.OB) recently announced that basketball legend Shaquille “Shaq” O’Neal had agreed to endorse the company’s sweetener, investors rushed to celebrate their good fortune. That blessing could turn into a curse, however, if history serves as any guide.
After all, celebrity athletes have inked similar deals with other penny-stock companies that later turned out to be suspected scams. Moreover, years ago, Shaq himself publicly endorsed a Washington company that orchestrated one of the largest investment frauds in that state’s history.
For its part, NXTH says that Shaq has agreed to promote the company’s SUSTA low-calorie sweetener because of the product’s “great taste” and “health benefits.” But Shaq clearly expects a generous payout in return.
According to a deal struck in late November, Shaq has already received 1 million shares of NXTH stock – and has been promised 2 million more – for lending his name to the company. With NXTH trading at $1.40 a share, that deal is currently worth $4.2 million.
Shaq can begin selling his NXTH stock, shedding up to 100,000 shares a month, on the first day of February. If the stock falls sharply after that time, he can suspend – or even terminate -- the deal.
The Street Sweeper attempted to reach Mine O’Mine, the firm that inked the deal on Shaq’s behalf, but those efforts proved unsuccessful. An NXTH representative, contacted about the deal last month, failed to arrange an interview with Shaq or his firm as well.
NXTH’s stock actually peaked before Shaq came through with his endorsement. It topped out at $3.47 on Oct. 27, following bullish recommendations from several promoters who were paid to tout the shares. It had fallen below $2 a share, however, by the time NXTH landed Shaq as a company spokesman. Although the stock jumped past $2.50 a share following news of that endorsement, it has lost all of that ground – and then some – since that time.
Drinking the Kool-Aid
The same pattern showed up in another penny stock following a similar celebrity endorsement.
Last month, shares of Blue Gem Enterprises (BGEM.OB) were literally stuck at 18 cents – on no trading volume at all – days before the company announced that star football receiver Terrell Owens (T.O.) had agreed to promote a sports drink that it distributes. During the first trading session following news of that deal, BGEM shot up – on explosive volume of 13.3 million shares – to end the day with a remarkable 85% gain.
BGEM maintained that heavy volume, but only half of those gains, when a promoter touted the stock (in exchange for 1.5 million free trading shares) the following day. After peaking at 76 cents during that session, BGEM ended the day at 51 cents a share. Although the stock continues to trade at a fairly brisk pace, it now fetches just 28 cents a share following a recent dive in its price.
Another beverage company endorsed by celebrity athletes has suffered an even worse fate. In early 2008, just a few months after launching a new health drink, the Purple Beverage Company (PPBV) began inking deals with professional baseball players to promote its product. By March of that year, the company’s stock had racked up such incredible gains that it caught the attention of Forbes despite its penny-stock status.
After rocketing 49,000% to almost $3 a share in just five short months, Forbes noted at the time, PPBV boasted a $152 million market value that was 105 times greater than the actual book value of the company.
Over the course of the next several months, PPBV continued to add some big names – including legendary Yankees relief pitcher Mariano Rivera – to its team. But the company’s winning streak had ended by early 2009, when Forbes revisited the stock and found it trading for just one penny a share. PPBV’s founding CEO, Ted Farnsworth, has departed from the company since that time.
“After going through a very difficult time over the last several months, we are now reenergized,” Farnsworth proclaimed on his way out the door. “This (management change) is a positive move for the company, the brand and the shareholders.”
Eight months later, PPBV trades on the lowly Pink Sheets for a fraction of a penny a share.
Promoting a Loser
Meanwhile, a company once endorsed by Shaq has already left a dark smudge on the basketball player’s name.
Back in 2001, news reports show, Shaq emerged as a prominent spokesman for a Seattle-area fitness company known as Znetix. The basketball star even sported a Znetix hat after his team won the national championship in June of that year, past news reports note, even as state regulators began cracking down on Znetix founder Kevin Lawrence for violating securities laws.
Seven months after that game, the Associated Press reported, the Securities and Exchange Commission formally filed charges against Znetix and Lawrence for bilking thousands of investors out of $80 million (a sum that would approach $100 million in the end). One year later, the Seattle Post-Intelligencer noted, the receiver overseeing Znetix’s assets filed a lawsuit against several big-name professional athletes – including Kareem Abdul-Jabbar and Eric Dickerson – who were identified as negligent officers or directors of the defunct company.
“They continued to serve and accept compensation from Znetix,” the lawsuit covered in the Post-Intelligencer article stated, “all the while burying their heads in the sand and ignoring flagrant wrongful acts going on around them.”
Although Shaq was not among the athletes sued, his name would remain attached to the scandal for years. It popped up in early 2005, for example, as three Znetix stock salesmen headed off to jail for their role in the massive scam. By then, the Post-Intelligencer reported, Lawrence himself had already received a 20-year prison sentence – setting a record in the state of Washington – after pleading guilty to securities fraud charges for masterminding the huge white-collar crime.
The media was still highlighting Znetix, along with the company’s star-studded publicity campaign, as a cautionary tale for investors just a few short years ago.
“Znetix recruited sports stars – including Shaquille O’Neal and Tiger Woods – for endorsement deals, and promised fabulous returns for investors,” The Columbian, a Washington-based newspaper, reminded in mid-2007. But “as the U.S. attorney’s office in Seattle succinctly put it in March 2005, ‘The advertising campaign was designed only to sell more stock, as Znetix had no products or services to offer, and little or no revenue.’”
Lately, stock promoters have been using Shaq’s recent endorsement of NXTH as a new reason to tout the company’s shares. Right now, for example, HealthyStockProfits.com features a picture of Shaq – along with news of his endorsement – on the front page of a long and bullish report urging investors to buy NXTH shares.
With Shaq now serving as an official spokesman for the company, the report states, NXTH is poised to capture a huge share of the multibillion-dollar sweetener market and see its stock skyrocket as a result. NXTH could soar more than 500% over the next nine months, the report proclaims, so investors should buy the stock now while the price is still “dirt cheap.”
Meanwhile, “in a rare happenstance,” the report notes, several other stock pickers – including Charles Payne of Fox Business Network – have embraced NXTH as well. In yet another “coincidence,” however, the report later discloses in a buried disclaimer that it received payment from the same obscure media firm that financed Payne’s bullish report on the company. Moreover, the report admits, that media firm received money for its payment from an NXTH shareholder “who may or will sell shares of the feature company at or about the time of this report.”
All the while, the report keeps urging investors to do just the opposite.
“Make no mistake: NXTH Nutritionals is still flying under the radar,” the report states. “And as soon as word hits the Street, I predict this stock will go through the roof.
“Invest now,” it proclaims, “before this stock zooms into the stratosphere.”
* To contact Melissa Davis, the author of this story, please send an email to email@example.com.
Ekso Bionics Holdings (EKSO): Good Times Come To A Screeching Halt
Ekso Bionics Holdings (EKSO) has been involved with the colorful Adam S. Gottbetter, known for nimble PIPE financing, a quick song with British group Squeeze ... or ...
(Source: YouTube video of Adam Gottbetter singing "Take Me, I'm Yours" with Squeeze)
... even a money raise for shock jock Howard Stern's favorite strip club.
Mr. Gottbetter became a key figure behind Ekso's private placement offering in January and February 2014 - Mr. Gottbetter's entity and sub-agents received ~3 million warrants exercisable at $1 per share, plus $3.03 million in commissions for handling the private placement.
But the good times came to a screeching halt.
Seven months after Ekso's PIPE, Mr. Gottbetter was sentenced to 1 1/2 years for stock fraud.
His guilty plea was in connection with schemes to manipulate three other companies' stock "with a view to selling his own shares at a profit." He's reportedly been involved with more than 160 companies but the companies named in the SEC criminal complaint were Kentucky USA Energy (KYUS, bankruptcy), Dynastar Holdings (DYNA, now $0.05, little or no trading) and HBP Energy Corp. (HBPE, now $0.00).
The Securities and Exchange Commission had this to say about Ekso's former investment banker:
"The SEC alleges that Adam S. Gottbetter orchestrated promotional campaigns that touted the prospects of microcap companies and enticed investors to buy their stock at inflated prices so he and his cohorts could sell shares they controlled and reap massive profits."
"During one meeting in New York City, Gottbetter complained about the difficulties of stock manipulation but conceded that robbing a bank was the only other way to make so much money so quickly."
When the trade publication QMed wrote about Mr. Gottbetter’s jail time for stock manipulation, the publication posted this comment from Ekso:
But Ekso apparently did not break ties with Mr. Gottbetter's law firm after his plea.
In the company's April 2016 filing regarding Ekso's private offering, we see that Mr. Gottbetter's entity, Gottbetter & Partners, examined the validity of the stock offering.
(Source: Company SEC filing)
The SEC broke ties with the attorney last year due to the SEC complaint and Mr. Gottbetter's guilty plea. In a remedial action dated June 23, 2015, the SEC suspended Mr. Gottbetter from practicing before the commission as an attorney:
(Source: SEC litigation)
Investors may find other viewpoints here. Meanwhile, TheStreetSweeper presents an executive summary on the Ekso investment risks:
*The company went public via a reverse merger with a Chile-based shell, followed later by a reverse stock-split.
*Despite pleading guilty to criminal stock manipulation charges, Ekso's investment banker remained tied to the company through his law firm, an Ekso filing indicates.
*Potential dilution looms. In an August stock sale, Ekso greatly reduced the price of warrants and preferred shares, which may pose potential dilution following the Nov. 7 lockup release. Also, another 195,313 share unlock occurs on Dec. 1, 2016.
*Ekso partners are signing up with rivals.
*Ekso enjoys very little institutional interest and some institutions have sold their Ekso stock.
*Professional stock promoters are trying to increase the stock price.
*Executive compensation exceeds $3 million.
*Sales are low and plunging to just $1.6 million last quarter, while operating losses hit $9.4 million.
*The cash burn rate is ~$7 million or 4 1/2 times sales last quarter.
*Persistent negative cash flow.
Now we'll step back four years, when the investment risks were beginning to form.
*1. Background: Building Risk
Ekso took a rather unconventional route to getting listed on the Nasdaq.
It began with PN Med Group, a company operating out of its president's home in Santiago, Chile. PN Med initially sold shares for $0.02 in its May 2012 public offering. The two-person company planned to use the president's car to distribute medical supplies made in China to clinics in Chile. But by the end of fiscal year 2013, it had managed nothing more than $16,949 in losses and no revenue.
This sort of shell company is just what companies look for when they're planning the cheap, fast alternative to going public.
So Ekso spotted PN Med. On Jan. 15, 2014, the companies conducted a reverse merger into Ekso Bionics, with plans to develop and sell "bionic human exoskeletons." Concurrently, the company completed a complicated deal involving bridge notes and the Gottbetter-managed private placement resulting in a $1 per unit alternative public offering.
But the new Ekso stock didn't catch on and by early 2016 fetched only about $0.85 per share. So the company pulled a 1-for-7 reverse stock split on May 4, 2016, pushing the post-split price to $5.44 per share on June 1.
Then the stock price got predictably hammered in the Aug. 9, 2016 follow-on public offering of 3.75 million shares at $4 per share. Though Ekso tried to soften the blow by leading the press release with news that the stock had been uplisted, the stock that traded for ~$6.22 plunged 37% to $3.94 in one day.
(Source: Yahoo Finance)
Now this Richmond, California exoskeleton maker just continues to heap risk on top of risk...
*2. Adjusted Prices Favor Insiders, Dilution Looms For Average Shareholders
That August raise generated about $14 million but came stacked with preferential treatment for some shareholders.
The company greatly lowered the price at which both warrants and preferred shares can be converted to common stock.
"Holders of our Series A preferred stock will be entitled to an anti-dilution adjustment as a result of this offering, which will result in dilution to the holders of our common stock, including the shares issued in this offering “ and “— The exercise price of certain of our outstanding warrants may adjust as a result of this offering, and the exercise of such warrants would result in dilution to our stockholders.”
So the conversion price of the preferred stock has been adjusted down from $7.07 to $3.74 per share."
And the warrants that would have carried an $8.75 exercise price were adjusted down to the bargain basement price of just $3.74 per share.
The filing includes this ominous note:
So these cheap shares owned by insiders will be released from the 90-day lock-up about Nov. 7, posing significant dilution potential for average shareholders.
*3. Partners Switch To Rival Technologiesmore...
Investor Alert: Resolute Energy Corp. (REN) Downside Risk
TheStreetSweeper issues a critical alert for Resolute Energy Corp. (REN) investors.
The Denver, Colorado-based oil and gas company's stock blew up to the year's high, after announcing an acquisition and millions of dollars of new debt.
TheStreetSweeper highlights the key reasons we consider this stock very, very risky right now.
*Outrageously Expensive Acquisition
It may sound ridiculous for a company reporting $424,000 in cash and a net loss of $-36.9 million ($-2.44/share) in June to announce plans in October to spend $135 million.
But that's exactly what happened.
REN on Friday completed the acquisition of oil and gas property in Texas for $135 million. The deal consists of $90 million cash and 2.1 million in common stock.
We might wonder where they came up with all that money. Well, REN is able to accumulated another 3,295 acres in the Delaware Basin by tapping its revolving credit facility and cranking out some new preferred stock.
The owners of the 62,500 shares of new preferred stock will be eligible for dividends that common stockholders will not enjoy. And those preferred shares are convertible at any time at ~$29.53 per share.
So the stock is currently trading above the initial conversion price, meaning dilution for existing shareholders.
REN is acquiring properties from Firewheel, a teeny oil company reporting only $4.3 million revenue over the six months ended June 31.
These properties "contain estimated proved reserves of 6.2 MMBoe with PV-10 of $45.8 million."
So REN has spent about three times the estimated value of reserves for production that may or may not pan out. This could be a very expensive disappointment for REN, whose own yearly production level has dropped ~4% to 7% from the previous two years.
The enormous stock rally appears to be in part due to a short squeeze.more...
22nd Century Group (XXII): This Smoking Stock May Be Bad For Your Health
The market must have been smoking weed when it ran up the stock in 22nd Century Group (XXII) to the highest levels of the year.
The company is researching genetically engineered cannabis but focuses on genetically modifying tobacco to produce high and low nicotine products.
The main products include high-nicotine and low-nicotine cigarettes called Red Sun and Magic, very low nicotine cigarette Brand A and very high nicotine cigarette Brand B, Spectrum cigarettes used in research and the X-22 smoking cessation aid.
Despite the stock rally, XXII has been swirling within a smoky venue of paid promotions - a lawsuit blocking key market entrance - heavy cash burn - poor financials - looming warrants - failed study endpoint - likely inability to get modified risk tobacco product (MRTP) labeling - and expected inability to nab a partner for phase 3 testing.
Investors may find other viewpoints here. Meanwhile, TheStreetSweeper highlights the top reasons we think XXII will end up burning investors:
This stock has been stoked by a series of paid promotional campaigns at a cost of $15,000 to $30,000 per campaign... Paid for by third parties.
(Source: stockpromoters; click for full list)
XXII promotions consist of a stunning 14 campaigns this year, with most hype emailed to investors in May.
Many of these promotions suggest XXII could get MRTP labeling.That's modified risk tobacco product labeling from the Food and Drug Administration. The labeling would be a key marketing tool because a tobacco company can't legally make reduced risk claims without it.
Despite the promotions, much evidence suggests that XXII will not get MRTP labeling ...
*2. XXII Failed Study, Swedish Experience Foretell Doom
It's highly unlikely XXII will get that desirable labeling.
First, the company has failed to advance its one and only phase 2 study. The study of the smoking cessation product called X-22 has been inactive for five years:
(Source: US National Institutes of Health)
Yet Swedish Match, a Stockholm-based company, is in the midst of about 70 active or completed studies for its products:
Source: US National Institutes of Health)
So we can't imagine how XXII - without a single completed study - can possibly expect approval of its MRTP application.
*3. Partner? Study Results Say No
XXII realizes that MRTP label depends on getting at least one study completed. But that will take at least $25 million.
The company doesn't have that kind of money. Cash coffers contained just $2.8 million in June but added ~$5 million from a stock and warrant deal. Also the company runs through millions and millions of dollars every six months. Cash burn jumped 64% in the first half of the year versus the prior year to $5.9 million or ~$3 million per quarter -- without the costs of resuming the study:
Even with cash now around $5 million, XXII will have to find a partner if it wants to take the next step.
But that is unlikely.
A partner would want some legitimate hope that phase 3 might succeed.
Though most investors don't know it, the study was dropped years ago after phase 2 failed to show any difference in the four-week period between X-22 and conventional cigarettes:
(Source: 22nd Century, BusinessWire)
Anyone willing to bet $25-$30 million that phase 3 will produce better results than phase 2? We didn't think so.
Unfortunately, XXII's track record with investors isn't too hot, anyway ....
Ocean Power Technologies (OPTT): Destined To Wipe Out
Ocean Power Technologies (OPTT) has been riding a wave of momentum trading activity. Since mid-July it's been a lot of fun.
But TheStreetSweeper has spotted ferocious waves swelling up on the horizon ... And OPTT is careening toward a teeth-jarring wipe out.
OPTT began operating two decades ago and still hasn't figured out how to commercialize its system of generating electricity from ocean waves.
On the surface, OPTT's virtually non-existent revenues appear to depend upon the government.
Really though, stock offerings and debt have kept the company afloat. It closed two stock deals last quarter but is left with no committed sources of equity or debt financing right now.
Meanwhile, OPTT has figured out how to attract a Securities and Exchange Commission investigation ... and become the subject of a class action lawsuit poised with potential stock dilution for loyal stockholders.
The stock is flying right now, partially because the market doesn't understand the insignificance of the September 13 announcement. The company hopes to develop a power buoy with the U.S. Office of Naval Research. The initial phase won't be complete until early June 2017. And OPTT is only getting ~$250,000 for that phase and maybe up to another $500,000 more if it's completed and Naval Research finds the funding....a whole lot of ifs.
Let's look at nine factors TheStreetSweeper believes will dunk this stock.
*1. Money Flies Out The Door Month After Month, Year After Year
In the most recent quarter, OPTT made just $200,000. And it took ~15 times that to operate the business ... a whopping $2.9 million.
(Source: Company SEC filing, TheStreetSweeper)
In the entire fiscal year of 2016, the company's revenue didn't even reach $1 million ... But losses hit the $13 million mark...
(Source: Company SEC filing, TheStreetSweeper)
The financials are so awful that auditors say it's highly doubtful the company can even continue to operate.
OPTT just stuffed its piggy bank with $3.6 million raised from a stock offering in July, raising the total cash to $9 million.
But the company makes ~$1 million hits on the piggy bank each month, bringing the cash to about $7 million.
That won't last long ...
*2. Investors On The Line
OPTT warns that it can't seem to stop burning up money and shareholders' investment may be lost:
"If we are not successful in our efforts to raise additional capital sufficient to support our operations," the company's latest 10-Q warns, "we would be forced to cease operations, in which event investors would lose their entire investment in our company."
In fact, the potential for diluting OPTT stock once again could happen as soon as November ...
*3. Tragedy, Lawsuit, Dilution Overhanging
The stock dilution threat is just around the corner, depending on a federal judge's approval of settlement terms of a consolidated lawsuit aimed at OPTT.
The company has been sued by a class of investors who bought the stock during the April 4, 2014 secondary offering at $3.10 per share. The lawsuit alleges untrue and misleading statements and/or omissions occurred around that time.
At this point, it looks like OPTT will pay $5000,000 and its insurer will pay $2.5 million under the settlement.
Here's the kicker: OPTT will also hand over 380,000 shares under the current terms. That's about 12% of the 3.15 million shares outstanding.more...
Everyday Health (EVDY): Quick, Call The Doctor!
Everyday Health (EVDY) is looking so pale that it may be secretly looking up its symptoms on rival website, WebMD.
Everyday had never exactly been the picture of health. The WebMD wannabe had racked up a $2.38 per share net loss when it went public in February 2014. The company made money in 2014 but slumped back to a $12 million loss or -$0.36 last year.
Here's how the prognosis looks to TheStreetSweeper:
*1. Google Changes
Ten years ago, WebMD was part of Google's experimental program to help improve health search results.
The experiment worked and WebMD became a popular site for consumers to diagnose their own illnesses. Before long, the Mayo Clinic developed its own well-recognized symptom checker.
Everyday Health and other content aggregators rushed in and began offering their solutions. The problem is that they must depend on Google searches because they aren't recognized brands.
Now a decade later Google wants to keep eyeballs glued to its own pages rather than rushing them away to the content aggregators.
Google began this effort in June, when it rolled out a new symptom search for Androids and Apple phones or tablets.
Now this mobile platform is pushing Google ahead of the game as more and more people switch from PC to smartphone searches.
*2. Looming: More Risk
Everyday Health and other content providers are dependent on Google, the No. 1 destination for health information: Get strong Google results or die.
Other risks are building right behind those posed by Google's new symptom search, including:
*The app is initially available in English in the U.S. with plans to expand over the months into other languages, countries and enhancements, thus introducing future challenges to Everyday Health.
*Google's symptom search eliminates the need to cross-check symptoms on WebMD or Everyday Health because cross-checking can be done on Google.
*Google is partnering on symptom search with institutions such as Harvard Medical School and the Mayo Clinic. Doctors are helping with Everyday Health's symptom lookup but most content is by writers who aren't doctors. Examples include:
(Source: Everyday Health)
*3. Mobile App Downloads Decline
Mobile is of growing importance to Everyday Health, which gets 75% of its total traffic from mobile.
Everyday's 2014 mobile revenues grew 82% to $68 million. But mobile has slowed drastically, with 2015 revenues hitting only $73 million or just 8% growth. However the company stopped breaking out mobile revenue after the third quarter of 2015, so we assume revenue growth has further declined.
The chief reason for the mobile disappointment is likely because iPhone users show far more interest in WebMD than Everyday. Everyday Health download rankings frequently fall below 1,500 in the health and fitness category:
(Source: App Annie)
That compares with WebMD's app which consistently ranks around the top 73 downloads:
(Source: App Annie)
An insidious threat has already taken a toll and is set up to kill much of the ability of sites like Everyday Health to make money from ads...
*4. Ad-Blockers Gobble Profitability Pathwaymore...
Teck Resources Limited (TCK): Lurching Toward A Monstrous Drop
The soft, scraping sound behind you is becoming more urgent. Don't look back. Rest assured the source of that cacophony is a clomping pair of red-splattered boots worn by zombie stock,Teck Resources Limited (TCK).
Indeed, this stock appears to be one of those on the ragged edge of the looming apocalypse. Dying sales figures, horrifying commodity prices and grotesque earnings - a 96% second quarter decline - have been sucking the life out of Teck.
The trick will be walking away from Teck as it leads a swarm of undead toward a cataclysm of unspeakable terror. To aid in that effort, TheStreetSweeper offers the top 10 bumps in the night for this stock.
*1. Sales Decline
The Canadian mining company focuses on coal for steel-making, copper and zinc through assets in Canada, the United States, Peru and Chile.
But now the company is clearly struggling as quarterly revenues dropped 13%, which CEO Don Lindsay said was "primarily due to lower prices for all our principal products." First-half sales dropped 15%:
(Source: Company SEC filing)
The sales trend has been nothing but down, down, down for five years:
Revenue fell 4% in 2015 from the prior year. Since 2011, Teck has seen a staggering 28 percent drop in revenue.
The situation resulted in CEO Lindsay issuing a warning, "we have lowered our coal and copper cost guidance for the full year."
*2. Valuation Absurd; Profits Plunge
Yet the stock sports a ridiculously oversized forward price-to-earnings ratio of 25.44.
But Teck isn't even making a net income. Teck earning figures took an epic drop into the red in 2015 ... The company lost over $2 billion!
Shareholders continue to take it on the chin this year, too. In the second quarter, profit dropped 96.2%.
That's right. Teck management said adjusted profit declined to $3 million Canadian, or $0.01 per share, versus $79 million or $0.14 per share last year.
But rather than driving a stake in Teck's heart, the terrible July 28 financials fueled the rocket ship:
The desperate company has been deferring capital expenditures, gradually laying off 1,000 of its 3,000 employees, selling assets and even shutting down its Coal Mountain project, a British Columbia mine once anticipated to produce 2.7 to 3.5 million tons of coal.
But even those efforts likely will not be enough for this commodity-dependent company. Such commodity businesses have taken a beating for a couple of years.
More trouble lies dead ahead...
*3. Commodity Prices Forecast: Demand Declines
Judging by the stock run, the market must have bought into the CEO's second quarter comments on his commodity business.
"While the commodity cycle continues to be challenging, we are starting to see some positive changes in the direction of zinc and steelmaking coal prices," said Mr. Lindsay in a statement.
But the world steel industry itself indicates the future appears gloomy.
Global steel demand contracted -3% in 2015 and the World Steel Association believes demand will decrease once again by -0.8%.
China has been Teck's chief customer. Yet the World Steel economics committee chairman, TV Narendran, said the greatest weakness in steel demand is expected to be in China:
“The economic environment facing the steel industry continues to be challenging with China’s slowdown impacting globally across a range of indicators contributing to volatility in financial markets, sluggish growth in global trade and low oil and other commodity prices...
"In 2016, while we are forecasting another year of contraction in steel demand in China, slow but steady growth in some other key regions including NAFTA and EU is expected. Growth for steel demand in all markets except China is expected in 2017."
(Source: World Steel Association)
Indeed, World Steel anticipates China's demand to drop 4% this year and another 3% next year. Annual steel product demand is expected to be 626.1 million tons ... a whopping 15% lower than in 2013.
*4. Negative: Free Cash Flow
Meanwhile, the company is already failing to generate cash. In fact, last quarter's negative free cash flow hit a stunning $-87.86 million.
That makes negative cash flow in each of the last three quarters ... adding up to negatives in 8 of the past 11 quarters (here).more...
Airgain (AIRG): Looming Dilution, A Potshot From Its Own Underwriter ... And More!
TheStreetSweeper issues an alert for Airgain (AIRG) investors. This recent IPO has flown for no reason and now circumstances have aligned to suddenly take all the air out of Airgain.
*Development No. 1: Nearly 3 million shares registered late Friday
The wireless network antenna seller has taken advantage of the high stock price to set up employees for more gains. Almost two hours after the market closed on Friday, Airgain filed to register 2.69 million shares of stock available under various incentive plans ...
(Source: Company SEC filing)
The issuance represents a cost to current investors ... looming potential dilution. And that's not all!
*Development No. 2: 1 million stock options pose immediate dilution
A second raft of potential dilution awaits investors, too.
Roughly 1 million options are exercisable immediately, according to the chief financial officer's comments during the earnings call
Those options appear to be awfully cheap ... exercisable at just over $2 per share.
(Source: Company SEC filing)
But Airgain isn't finished diluting shares yet...
*Recent Development No. 3: Another ~5 million shares loom just around the corner
A third raft of potential dilution awaits investors in the form of ~5 million shares - in converted preferred shares, dividends and warrants. These shares have been held since the IPO in August and will be available for trading as soon as the 180-day lock-up period ends.
Imagine all the champagne-cork flying and caviar gulping at insiders' New Year's Eve parties as they begin celebrating their potentially huge payday around Feb. 7!
After all, the stock is trading ~94% higher than just six weeks ago.
(Source: Yahoo Finance)
And an odd circumstance has developed right on top of the dilution concerns ...
*Recent Development No. 4: Coverage only from its own underwriting firms ... and they're not even on the same page.more...
Exact Sciences (EXAS): Flush This Stock!
Other than the out-of-whack stock price, nothing seems to be going exactly right for Exact Sciences (EXAS).
In the 21 years since the Madison, Wisconsin company began trying to develop and sell a DNA-based colorectal cancer screening tool, it has produced three failures and one product whose fate remains to be seen.
PreGen-Plus, Effipure and ColoSure initially attracted a partnership with commercial lab Laboratory Corporation of America Holdings (LabCorp). Just a few years after the 2003 launch of PreGen-Plus, Exact got slapped with an FDA warning letter noting "serious regulatory problems." The medical device couldn't seem to rise above that issue or a general lack of popularity despite the efforts of LabCorp's 1,100 sales people.
So LabCorp discontinued both PreGen-Plus and Effipure in June 2008. ColoSure was launched the following month, but soon suffered bad press and very disappointing sales, generating paltry royalties of $20,000 and $26,000 yearly in 2010 and 2011, respectively. Finally, in 2012, LabCorp reported "no sales," thus no royalties for Exact. Now LabCorp had its third failed product by Exact.
About half-a-billion dollars had gone down the latrine by the time the company launched its most recent DNA-based colon cancer diagnostic, Cologuard, in 2014.
But last quarter only 54,000 Cologuard tests were processed at $21.2 million revenue, generating two times more operating losses than revenue.
The company was so desperate it funded its own study in hopes of getting good test results from Cologuard.
But disappointment struck this time, too.
Researchers recently released results showing the more traditional screening is both less expensive (FIT's ~$30 versus Cologuard's ~$600, though covered by Medicare and some insurance companies)and, in apparent conflict with an earlier study, more effective than Cologuard (referred to as MT-sDNA.)
In fact, researchers found Cologuard would only be comparable with FIT (fecal immunochemical test) if consistent participation by users jumped 68% or Cologuard's cost fell a whopping 60%.
But Exact can't discount Cologuard 60%.
Why? Because Exact spends so much to generate revenue. The company reports spending 62% of revenue to capture those sales.
The self-funded study bummer is just part of what is not exactly right with Exact. Investors may find other viewpoints here, while we consider other risks that could send their investment straight down the water closet.
*1. Clinician's Guide: Patients Resist Cologuard Requirement
Cologuard costs some 20 times greater than other stool tests. And it turns out that patients resist the stool sample collection and preparation required by Cologuard (referred to below as sDNA).
That's according to doctors who wrote a clinician's guide to fecal blood testing that was published last April in the Southern Medical Journal:
"With sDNA, the patient must self-collect the entire stool and ship the specimen via delivery agency to the laboratory for analysis. In contrast, FIT requires only one stool sample. Patients seem resistant to sample their own stool. The requirement of collecting the entire stool and shipping the specimen for sDNA testing ..."
(Photo source: Cologuardtest.com)
"rather than taking a small sample for FIT and dropping it off at a local laboratory is concerning for many," researchers wrote.
In fact, Exact has noticed the ewweeww factor with Cologuard - which still requires the "whole stool" collection used by its previous failed products. Patient compliance for Cologuard was already low at 69% in the first quarter ... but fell even more in the second quarter to just 68%.
*2. Dangerous False-Positive Results
Another concern is Cologuard's high level of false-positive results.
That's according to final recommendations from the US Preventive Services Task Force (USPSTF). The group noted that FIT-DNA (Cologuard) found 92% of cancers versus FIT's 74%, however Cologuard correctly identified 8% fewer true negatives than FIT identified.
The stock had moved on hope the panel's update to its earlier report would remove Cologuard from "alternative" testing to "recommended" testing. But the final recommendation simply dropped the terms alternative and recommended.
The USPSTF provided the table below, summarizing various screening techniques.
The task force also wrote that FIT-DNA (Cologuard) produces "... more false-positive results per screening test and an increased probability of harm from diagnostic colonoscopy."
(True negative means the disease being tested for was not found. False positive means the proportion of people who are actually free of the disease but test positive.)
The task force added that the FIT-DNA (Cologuard) false-positives mean "a higher likelihood of follow-up colonoscopy," an invasive procedure which has downsides of anxiety, discomfort and even morbidity.
*3. Expensive Direct-To-Consumer Marketingmore...
Resolute Energy Corp. (REN): Primed To Decline
Resolute Energy Corp. (REN) stock is primed and just one down-tick away from disaster.
TheStreetSweeper issues this quick alert on this Denver-based oil and gas company that is still the same miserable money-loser it was a couple of weeks ago ... except now the stock is even more dangerously overpriced.
Here are TheStreetSweeper's top five reasons that we believe this stock is begging to tank:
*1. Nothing New: Management Cheering
The company's production is substantially declining:
Not surprisingly, financial results for 2Q were just as horrible as the production figures. Revenue declined and negative earnings persisted. "Resolute recorded a net loss of $36.9 million, or $2.44 per share, on revenue ... of $35.4 million during the three months ended June 30, 2016. This compares to a net loss of $259.1 million, or $17.30 per share, on revenue ... of $48.4 million during the three months ended June 30, 2015."
The company placed that vital information on page 4, well below the company cheerleading statements that began with: "Production guidance revised upward by thirteen percent."
During the month following the release of those financials, the stock climbed from $8.35 to $22.88, an astounding 174%. Why? Because REN guys felt optimistic. And others piled on more unfounded optimism...
*2. Pumping: Chat Rooms, Fool
Chatter within chat rooms such as investorshub has heartily promoted REN to retail investors. Such attention is often a hallmark of a stock groomed to be a highflier one day, and doomed to be a lowdown loser the next. Note that nobody talks about the company's financial condition or potential. It's all about the stock movement.
Briefing.com threw REN onto the radar, too:
Motley Fool also published a bullish piece (here) which helped rocket the stock, while the author suggested the company's optimistic production guidance was the primary driver.
*3. Big Investor: Selling REN Stock
A major investor - SPO Advisory managed by John Scully - has found reason to sell REN stock.
SPO dumped 10 million shares in late April, severely trimming the investment firm's ownership:
(Source: Company SEC filing)
Indeed, institutional investors were selling out, pre-reverse-split, at nearly three times the rate of those taking new positions:
*4. Analysts: Mixed
Meanwhile, as a testiment to absurdity, REN is way above analysts' average one-year price target:more...
Rentech (RTK) Kryptonite Slams Investors
Like a diabolic superhero, Rentech (RTK) has tried to leap tall financial issues with a single bound.
But now a ton of kryptonite is headed its way, promising to decimate the company stock in one fell swoop.
TheStreetSweeper's executive bullet points summarize the superhuman problems that will chop this wood fiber company's stock into splinters:
*A one-time tax gain creates an illusion of profitability.
*Revenue drops 20%; EPS falls 486%.
*Negative and extremely low margins doom profitability.
*The natural gas industry presents indomitable competition.
*Key plant reaches only 40% of capacity, three years after acquisition.
*Nearly $19 million in contract penalties and plant modification costs pressure cash coffers.
*Interest in low-performing nitrogen sector further weighs on Rentech.
*The company loses $153 million in 2015; executives make millions.
*1. Not So Super, After All: One-Time Gain
Rentech's second quarter turned in a $358.6 million book gain. But an overly excited market rushed to pop up the stock without taking time to understand what's really behind that number.
The figure is just an illusion of profitability caused by a one-time tax gain.
During the Aug. 10 2Q earnings call, chief financial officer Jeff Spain said:
"We recorded a pretax gain on the sale of Rentech Nitrogen of $358.6 million which was booked in discontinued operations. This gain was comprised of cash proceeds of approximately $60 million in common units of CVR Partners valued at $202 million based on CVR’s closing price on March 31. These values were compared to Rentech Nitrogen’s net book value excluding the capacity in holdings which was a negative $97.6 million."
Completely misunderstanding the book gain, the market sent shares soaring more than 20% in a day and over 50% in seven trading days.
*2. Revenue: Can't Save The Day
People didn't understand that Rentech's second quarter revenues actually swooped lower!
Resolute Energy Corp. (REN): Overloaded And Ready To Tank
TheStreetSweeper issues an investor alert for Resolute Energy Corp. (REN).
Considering this stock's flight to a mind-blowing $20 per share early this week, investors would never guess the pathetic condition of this Denver-based oil and gas company's finances nor its junk status nor its huge 2Q loss of $-2.44.
The stock jumped following the Aug. 8 2Q report that the board had approved continued drilling in 2016 and average daily oil production improved from 9,016 barrels the quarter earlier to 11,865 barrels. What wasn't announced is the recent production level is a ~4% to 7% drop from the previous two years.
The market pushed up Resolute and other oil companies' stock with the crude oil rally on Aug. 15.
In a heartbeat, everything changed.
Mr. Sutton owns 2.1 million shares of the company stock. Considering the stock price has nearly tripled this month, TheStreetSweeper thinks it wouldn't be a bad idea if he chooses to sell a bunch of shares and ride off into the sunset.
It's unclear how smoothly the company can replace the man who has been CEO since the company's founding in 2004. Mr. Sutton will stay on as executive chairman but the new chief executive will be Richard Betz, a manager since 2004 and chief operating officer since 2012.
Below are five more big reasons TheStreetSweeper is warning investors that this stock will almost undoubtedly suffer a rapid, tooth-rattling drop from the current ridiculous levels.
*1. Reverse Stock Split: Stock Flies
Resolute stock looked like one big empty oil tank when it pulled a 1-for-5 reverse stock split effective just two months ago, on June 8.
The maneuver worked better than anyone might have imagined, rocketing the stock nearly 3,000%.
The stock split put Resolute in compliance with the $1 per share minimum requirement. The reverse split also helped improve the valuation following its latest New York Stock Exchange delisting notification received last November. The company had been out of compliance because market capitalization and shareholder equity have each dropped below $50 million. The exchange will continue to monitor those factors.
*2. Wandering In: Wunderlich, Etc.
Within days after this stock split, investment analysts began lining up to put in their two-cents worth about Resolute.
Barclays analysts on June 14 maintained an "underweight" rating and raised the price target from $1 to $4.
On July 11, Wunderlich Securities upgraded the stock from "hold" to "buy" and set an $8 price target, up from $4. The very next month, the firm raised the PT two more times ...
On Aug. 10, Wunderlich raised the price target again... this time to $15.
Despite no Resolute news (and bad news about oil prices and the CEO departure just two days away), on Monday, Aug. 24, Wunderlich raised Resolute's price target to $25, triple the July figure.
Other firms' Resolute ratings are shown below.
Wunderlich, Barclays and Johnson Rice each shared underwriting responsibilities for the company's 16.25 million share offering at $8.22 back in May 2013. We can only imagine that these firms would also be interested in handling any future underwriting duties.
*3. Downgraded: Junk Status
Resolute had already been suffering from a junk rating when its deteriorating credit quality spurred Standard & Poor's further downgrade ... just four months before the reverse stock split and the odd glut of analyst attention:more...
Zagg (ZAGG): Why Investors Should Zag Away From This Stock
We couldn't blame Zagg Inc. (ZAGG) if it's quietly suffering buyer's remorse.
But the cell phone accessory company will really be in trouble when investors understand the reason for the disappointment ... and that buyer's remorse rubs off on them.
The troubles can be traced back to shortly after February, when Zagg bought Mophie, maker of an iPhone battery case called Juice Pack Air. Mophie's pretty battery cases seemed to be flying off the shelves. So Zagg, looking to diversify, rushed in and bought out Mophie for $100 million.
It was supposed to be a fire sale.
Enter the PokemonGo craze. The augmented reality game launched July 6 and immediately became a phone battery hog. Zagg's stock ran up 38% on hopes that Zagg could help address the need with its Mophie battery-extending case.
But now Zagg is positioned to run out of steam.
Investors may find other viewpoints here and the company website here. Meanwhile, TheStreetSweeper examines why Zagg's stock is now incredibly risky.
*1. Set Up For Failure
As it turned out, Mophie had been losing multi-millions. As competition has grown, business has deteriorated, handing Mophie last year a loss of $29 million.
So Zagg management justified the $100 million cash-and-debt acquisition by touting sales and growth figures.
"Mophie’s 12-month sales are estimated to range from $210 million to $230 million, or sales growth of 3% to 13% compared to 2015 estimated sales of $203 million," said chief financial officer Bradley Holiday during the March 9 earnings call.
Then two months later, after everyone had forgotten about management's estimates, the pro forma numbers came out. Sure enough, Mophie sales grew only slightly to about $186 million. ... The reality was $24 million to $44 million less than those fancy touted numbers.
(Chart 2 Source: Zagg SEC filing)
Those exaggerated numbers have set Zagg up for failure ....
*2. Touted Growth Despite Deteriorating Business
Since 2015 sales turned out puny compared to those touted by management, the Mophie segment will have to sell a ton of cases this year:
The Mophie segment must be gulping over those expectations ... because the business has been deteriorating over the last couple of years.more...
Magellan Petroleum (MPET): Gas Mask Needed For This LNG Plan
Magellan Petroleum Corporation (MPET) threatens to become the poster child for the "good deal" gone bad.
Teetering at the brink of bankruptcy, MPET is an old time oil and gas company that executed a reverse split last year, then recently fell into a reverse takeover on hopes of floating an $8 billion idea that won't be operational until 2025. The plan is to build a liquefied natural gas terminal on 477 leased acres in Louisiana. The idea is stoked by a man who has been vilified by activist investor Carl Icahn.
The stock has rocketed on this plan ... but is now precariously positioned for decline.
*1. Billions: Cost of MPET Plan
At the core of the MPET merger is Driftwood LNG. Former Cheniere Energy CEO Charif Souki filed a request in May with the Federal Energy Regulatory Commission (FERC) to begin an environmental review process for Driftwood.
The new, as-yet-unnamed company hopes to produce and export 26 million tons per year of LNG in facilities in southwest Louisiana. Construction is hoped to begin in 2018 and will likely take seven years, with the first plant operational in 2022.
Company officials expect the project to become fully operational the second quarter of 2025. The project is expected to cost $8 billion.
In contrast, Denver, Colorado based oil and gas company MPET has turned into a shell of a company forced to sell its assets to fund operations. The company operates under the cloud of going concern issues and earnings have been negative. Over the last 12 months, the earnings per share have been in the red at $-9.17.
At the end of March, MPET's available cash had fallen to $131,000.
*2. "This Is Insane"
Yet this odd pairing of a dying company with a startup anticipating billions of dollars in expenses has captured retail investors' imagination and pushed MPET shares up over 400% since the Aug. 3 merger announcement.
The reverse takeover of MPET will allow Mr. Souki to take his new company public, Tellurian Investments, with business partner Martin Houston.
Just last December, billionaire shareholder Carl Icahn ousted Mr. Souki from Cheniere.
He said Mr. Souki was “taking $80 million out, and any stock he could sell, he sold."
Mr. Icahn continued his comments on Mr. Souki, according to Bloomberg:
“So here he is doing this, going in with one idea after another. I looked at this and said, ‘This is insane. This is the problem.’”
“I’ll tell you know what he knew -- he knew how to go almost bankrupt, because that’s what happened to him.”
Cheniere approached bankruptcy in 2008 as Mr. Souki developed a multibillion-dollar plan to import liquefied natural gas into America, but the U.S. had become awash in gas production from shale drilling. Cheniere was left with huge, expensive LNG tanks and nearly empty pockets, as Forbes wrote.
Then Mr. Souki pushed an even more expensive idea of exporting some of that U.S. gas overseas. But the collapse in oil prices came as the costly plan was slowly unfolding.
(Source: Yahoo Finance)
Cheniere shares fell by more than half in 2015, attracting Mr. Icahn's stake in the company in August 2015, two seats on the board and an interest in examining Mr. Souki's ideas.
According to Bloomberg's April 2016 article, after Mr. Souki was fired, Mr. Icahn commented that Mr. Souki had “harebrained ideas.”
Under the MPET deal, each share of Tellurian will be converted into the right to receive 1.3 share of MPET. The company will issue about 122 million shares of common stock to Tellurian shareholders - about 95% of MPET's outstanding stock. This dilutive deal is expected to be completed in the last quarter of 2016.
Yes, that's 122 million shares added to the 5.8 million outstanding. So at around $5 per share the market cap exceeds $600 million ... for a company that has nothing but an idea.
*3. Oversupplied: Gasmore...
Northern Dynasty Minerals (NAK): Looming Dilution Potential, 6 More Downside Risks
After a decade of controversy over its proposed Pebble mine, Northern Dynasty Minerals (NAK) is still absolutely nowhere.
At first glimpse, unwary investors might expect significant news because the stock has practically doubled over a month to unsustainable levels.
The Pebble property covers 153 square miles of land in Alaska, taking in at least 15 square miles for the proposed mine operation and tailings ponds. The project would place one of the world's largest copper and gold mine against the world's largest salmon fishery and environmental concerns.The project has not yet entered the permitting phase.
So there's no real news now and this stock has no upward trajectory left. Investors may find other viewpoints here and the company website here. Meanwhile, TheStreetSweeper highlights seven key downside risks to NAK investors:
*1. Hello, Momentum Traders
Momentum traders keyed in on the stock on Monday, July 11, when Insider Monkey noted that Sprott Asset Management disclosed a 5.45 interest in NAK. Volume jumped to 5.8 million, more than double the shares traded the Friday before - the day of the company's Sprott filing. The share price closed 29 percent higher at $0.54.
But by July 29, Sprott had already begun selling part of its NAK stock. The firm disclosed its ownership had dropped to 3.9% or 10,490,200 shares .... a sale of 4,234,300 shares.
*2. Pushing NAK
Then - and we have to extend congratulations here on the apparent huge following and ton of money made - Rick Rule, with Sprott Resource Corp. and Sprott Holdings, suggested the stock during a BNN interview on Aug. 11.
According to his comments on BNN: "It is an ultra-high risk optionality play. One of the biggest, and highest grade copper gold deposits in the world, it is subject to a legal and political dispute. In our opinion, a political resolution with Alaskan Indigenous owners would solve the legal dispute, and both sides have ample incentive to reach a mutually beneficial agreement. This will be a binary outcome, a huge win, or a substantial loss, and the time frame is indeterminate."
Some of the air had gone out of the stock from the time of the Sprott disclosure a month earlier until Mr. Rule's suggestion last week ... But NAK again rose - notwithstanding the fact that Sprott Resource Corp. itself extended its losses recently, reporting $17.5 million net loss in the second quarter. Traders apparently also didn't notice Sprott's stock chart:
Indeed, the suggestion from Sprott advanced the NAK stock runup.
Congratulations to those who got in on the momentum trading over the past four weeks or so.
Congrads to Sprott ... likely poised to sell more stock right now.
Keep in mind that this trade activity is based on - indeed in spite of - the same old, same old ...
*3. Same Ol' Losing Company
NAK is the very same company it was on Aug. 12.
The day after Mr. Rule included NAK among his investment suggestions, NAK finally had some real news. On Aug. 12, the company reported it had lost millions again.
NAK filings also disclosed it is quickly burning through its minimal cash stash:more...
Energous (WATT): Don't Get Shocked ... Big Downside Risks
Judging by the stock buoyancy of Energous (WATT), you'd never know that the developer of wireless charging technology just announced it lost $10.3 million. And on a per share basis the loss hit $0.62.
It seems the market missed the Santa Jose, California firm's comment near the bottom of the press release that it has a new investment ... which is dilutive.
Maybe the market is beginning to get bleary eyed at yet another overly optimistic spin: "With the new investment from Ascend Capital and our first silicon and royalty revenues expected before the end of this year, our financial position is secure. We are poised to expand our company and accelerate the pace of licensee expansion to make our vision of a ubiquitous WattUp ecosystem a reality and solidify our position as market leader."
Investors may find other viewpoints here. Meanwhile, TheStreetSweeper alerts investors to four good reasons this stock is poised to wreck investment portfolios:
*1. WATT: More Money, More Money
WATT keeps running to the stock trough in search of more cash. And each time the company goes back for more, the quality of the stock offering declines. Consider:
*Dec. 10, 2014: Secondary offering. $7/ share. Raises $21 million. (Oppenheimer, Roth, National Securities)
*Nov. 17, 2015: Secondary offering. $6.90/share. Raises $19 million. (Ladenburg Thalmann, Roth, National Securities) Note: lower share price, lower raise, second-tier bank compared with 2014.
*Aug. 9, 2016: Ascend Legend private purchase. $12.36/share. Raises $20 million. Note: Generally undesirable PIPE (private investment in public entity) deal results in warrants good for 5 years, each worth $6.80/share, according to a Black-Scholes calculator. The deal participant makes money if he can sell the common share at $6, which has a dilutive effect on current shares.
*2. Puff-Puff: High Claims; Delivery's Tougher
WATT doesn't need the fluff pumped out by professional promoters, such as those who hyped the stock in 2014 and 2015 (here). It can be overly optimistic all by itself, thank you very much.
Claim: "Ascend is a multibillion-dollar hedge fund based in California," CEO Steve Rizzone said during the Aug. 9, 2016 earnings call.
"The second consideration is the investor, receiving an investment of $20 million from a $3 billion hedge fund like Ascend is a strong validation point for Energous," Mr.Rizzone added.
Reality: Ascend isn't a multi-billion company. Bloomberg shows Ascend is valued about 230% lower:
Milestone Claims: WATT managers consistently talk (as SA author Paulo Santos notes) about commercialization being just around the corner...
* Q1 2014 earnings call: "We believe that we will have actual consumer product in the market in the third quarter of 2015 and as a result we should start to see our royalties flow in the fourth quarter of 2015."
*Q4 2014 earnings call: "... we now intend to have WattUp technology full integrated into products from strategic partners supporting the internet of things at the 2016 CES Show and available to the consumer by the end of the first quarter, beginning of the second quarter of 2016.
*Q2 2015 earnings call: "... our technology will be incorporated into their products and as a result they will make the call on terms of timing ... we believe it's a technology through either our strategic partners that we will sign in the coming months who may have accelerated product cycles who will likely will be available towards the end of 2016, the first part of 2017 and it will have a broader expansion into markets in the latter half of 2017."
*Q4 2015 earnings call: Did not push out product time line. But changed the topic from full scale WattUp transmitter to mini WattUp transmitter.
*Q2 2016 earnings call: "We are also reconfirming our projections that consumer products from our licensees of the Mini WattUp transmitter technology will be shipping late this year or early next year. The WattUp enabled Midsize transmitter applications will be shipping in late 2017 and the Full-size WattUp transmitters will be shipping in early 2018."
For some reason ... well, many reasons...WATT bears an unfortunate resemblance to Second Sight Medical Products (EYES).
*3. WATT: Reminiscent of EYESmore...
Image Sensing Systems (ISNS): What Goes Up Must Go Down ... And Fast
TheStreetSweeper issues an investor alert on Image Sensing Systems (ISNS).
The company focuses on software-based detection products for the transportation industry.
Incredibly, the stock is flying following a dull announcement that it is expanding its product offering (here).
But investors need to be alert to the company's extreme risks at this point, including:
*1. Cash Poor
ISNS reported as of June 30, it had about $964,000 in cash. That's too little to run a company, and well below the (also paltry) $2.6 million reported in December.
*2. Extreme Cash Burn
ISNS is burning the cash. In just a quarter, it rips through around $1 million to $1.2 million. This suggests a capital raise may be imminent.
*3. Poor Earnings
In six months ended June 2016, net income was $0.18 or $0.10 higher than in 2015. However, company revenue declined from a year earlier, while cost of revenue increased:
(Source: Company SEC filings)
Unfortunately, the year's revenue was the lowest reported in 8 years.
Investor Alert: Odyssey Marine Exploration (OMEX)
TheStreetSweeper issues an investor alert for Odyssey Marine Exploration (OMEX).
The shipwreck exploration company is rapidly turning into an epic shipwreck that will leave unwary investors drowning in its wake.
The company faces massive issues, including:
*Virtually no cash left.
*At the brink of Nasdaq delisting.
*Likely bankruptcy or major dilution looming.
*Professional promoters, chatrooms hype the stock.
*Don Diego project application is dead.
*Recent announcement apparently meaningless; actually a lost opportunity.
*OMEX loses millions while executives make millions.
Financial distress has forced this Tampa, Florida company to essentially give up salvaging shipwrecks in December 2015 to re-focus on mining underwater phosphates in Mexican waters. But that plan was derailed six months ago when the Mexican government rejected the company's environmental application to dredge in the "Don Diego" deposit.
Let's look more closely at OMEX, most likely the worst company we've ever considered...
*1. Virtually No Cash Left
Today's investors might be surprised to learn that OMEX has operated as a hobby for the past decade, as shown by consistent yearly net losses.
Those losses reflect OMEX' ongoing predicament of cash burn exceeding available cash:
(Source: Company SEC filing)
The company managed to add to cash and cut debt by selling its exploration boat, headquarters building and shipwreck inventory in December 2015. Company filings say now there's no remaining inventory.
And by the end of September 2016, barely assisted by a $2.4 million contract, OMEX was likely almost down to its last dollar. But Epsilon Financing agreed to amend a note to give OMEX its final $3 million infusion - at a draconian 10% interest rate. The loan allows OMEX to limp along another quarter until the wolves line up at the doorstep again ...
*2. Finance Or Delist
So OMEX is left with two choices: It must get significant financing, likely via convertible shares ... or go to the dreaded over-the-counter bulletin board.
When the stock goes to the bulletin board, the show's over. Everyone moves on. And the stock we believe is left to trade for about 50 cents apiece.
*3. Nasdaq Delisting
The delisting notification boils down to this...
To hit that valuation, shares need to trade for about $4.65 per share and remain at that level for 10 consecutive business days by Nov. 21.more...
Broadwind Energy (BWEN): Miserable Margins, Horrific History Sweep Away Potential
Broadwind Energy's (BWEN) chief executive recently commented, "I am tempted to say everything went wrong."
The CEO referred to production problems when she made that comment during a recent earnings call. Issues such as paint spatter resulted in $4 million worth of unusable wind tower sections and left an important wind tower order unfulfilled.
But those words beautifully sum up Broadwind's past and present condition.
The executive behind those words is Stephanie Kushner. She settled SEC charges just last year - along with Broadwind and a former CEO - related to allegedly keeping investors in the dark about Broadwind's financial deterioration.
Today, the Cicero, Illinois wind tower support manufacturer remains a disaster, with operating losses 253 percent worse than a year earlier.
Regardless, Broadwind stock has risen ... and is now precariously positioned to fall apart.
Investors may find other viewpoints here. Meanwhile, TheStreetSweeper presents the top eight reasons we believe an investment in Broadwind will soon be gone with the wind:
*1. Historically Peak Production: Still Losing Money
Broadwind's business is so poor that even at near-peak production of 450 towers in 2015, the company still lost money hand over fist.
In 2015, Broadwind whipped up the following:
*Lowest revenue in 5 years. A 17% drop from prior year.
*Worst net income in 3 years. A 99% drop from prior year.
*Worst return to stockholders in 4 years. Earnings per share dropped 220% from prior year.
Broadwind is twisting and flailing like a mosquito in a tornado, thanks to some basic problems...
*2. Smashed: Margins
One massive problem is that Broadwind is selling a commodity weighed down by terrible gross margins.
Margins for the year hit the lowest level in 4 years ... 3.95%:
So out of every $1 Broadwind makes in sales, it gets to keep less than 4 cents.
The company did manage to cut costs and raise the margin slightly last quarter. But cost cutting can go only so far.
Sales, general and administrative costs were 8.9% (9% for the year) of revenue. Broadwind can't make a profit with yearly gross margins of just 4% to 7% - the range the company has reported over the last five years.
*3. Wind Tower Production: Not Like Canning Beans
A bull somewhere may find hope in Broadwind's announced $137 million contract over three years or about $45.6 million per year. But the challenge will be dealing with the combination of terrible margins and production problems.
Ms Kushner talked about those production killers during the fourth quarter 2015 earnings call (here):
"We produced only 450 towers, although we had sold 500 and we paid dearly for this miss in cost overruns, efficiency losses and customer penalties."
Ms. Kushner went on to describe the roughly $12 million cost of production mishaps. She added:
"There was clearly too much variability in our production results. The majority of our problems are in two key areas: the paint process and managing an increasingly complex supply chain."
Additionally, she suggested the Abilene, Texas plant layout was poor and cramped, and the workers were relatively inexperienced. The CEO added:
"And I think if we were making cans of beans or something, it would be great."more...
Ocean Power Technologies (OPTT): Expanded SEC Probe, Promotions, Revenue Decline
Ocean Power Technologies (OPTT) is creating waves alright ... just not the right kind.
Over 32 years, the company has failed to turn electricity-generating ocean wave power into a real business.
But the company has created waves over the years by recycling old "news." All backed by a veritable brigade of promoters eager to push the old news and thus keep the company on investors' radar.
Ocean Power has turned into swamp gas, racking up over $177 million in losses but no commercial product.
Yet the stock recently lifted off and floated to price levels not seen in over a year.
TheStreetSweeper alerts investors about what's really behind this rally ... and why the stock is precariously positioned to sink into the deep blue sea.
First, the executive bullet points:
*SEC investigation expands
*No cash set aside for SEC investigation losses
*Oddly timed stock promotions
*Nearly $1 million cash burn monthly
Investors may find other viewpoints here. Meanwhile, below are TheStreetSweeper's details surrounding Ocean Power's stormy seas:
*1. Agreement: Just Rehash
On June 1, the stock shot up some 300 percent on a company press release announcing Ocean Power's lease agreement with Mitsui for a power buoy "planned to be deployed off Kozu-island..."
(Source: Yahoo Finance, TheStreetSweeper)
All well and good, right? Except that Mitsui deal is not new. The companies began working together eight years ago.
But in October 2013, Ocean Power reeled out a strikingly similar press release which said the company agreed with Mitsui "to cooperate in the development and commercialization" of the power buoy.
Ocean Power's habit of recycling old news goes back several years. In 2012, the company announced it clinched a deal with Lockheed Martin for a demonstration project in Australia. here.
*2. Amazing: Pitiful Sum, Many Years In The Making
One thing about the recent, much-trumpeted Mitsui deal is amazing. It has taken Ocean Power three years to progress from agreeing, to agreeing some more and planning to deploy a power buoy. All that time and effort for an engineering services and licensing contract expected to be worth only $975,587 over half a year or so...
Mitsui apparently considers this arrangement no more than a science experiment; the Mitsui website doesn't even mention Ocean Power and its ballyhooed agreement.
(Source: Mitsui Engineering and Shipbuilding)
Alarmingly, Mitsui's sub-million-dollar contract is Ocean Power's "one revenue producing contract."
Lately, Ocean Power has needed to lean heavily on its one viable deal...
*3. Critical Timing: July 14 Press Release
Ocean Power's July 14 press release should have been considered skeptically.
You see, the very next day, the company was scheduled to release its fiscal year financial report. And that report was filled with shockers.more...
Vuzix Corp. (VUZI): Dismal Business, SEC Inquiry, Habitual Stock Offerings
Looking through Vuzix (VUZI) eyewear, we see a future clouded by an SEC inquiry, paid promotions, more stock-diluting raises and more investor money thrown down the drain.
Executive bullet points for Vuzix include:
1. Company is a glorified stock promotion
2. Operates a minimal, declining business
3. Under SEC inquiry.
4. Has nothing to do with PokémonGo.
5. Faces stock dilution which we believe is imminent.
Here are details on the top five reasons that TheStreetSweeper wants to toss out Vuzix and its goofy, not-that-smart eyewear:
*1. May 24: SEC Launches Vuzix Inquiry
On May 24, the Securities and Exchange Commission notified Vuzix that the company is under inquiry.
"On May 24, 2016, we received a letter from the SEC, dated May 19, 2016, notifying the Company that the SEC is conducting an informal inquiry relating to the Company, and requesting that the Company produce certain documents relating to the Company’s internal control over financial reporting. If, in connection with this informal inquiry, the SEC determines to take action against the Company, the Company’s financial position could be adversely affected."
On July 6, Vuzix finally mentioned the SEC inquiry. Instead of immediately disclosing this crucial matter in an 8-K, the company waited six weeks to disclose the news near the bottom of its prospectus.
Why? First, let's look at recent events and then we'll put it all together ... Read on ....
*2. Promotion: After The SEC Notification
On June 9, professional promoters pushed a video news release promoting a so-called collaborative agreement between Vuzix and an undisclosed party.
The CEOLive host quickly mentions that no licensing agreements or technology transfers have happened; but the parties have agreed to work toward a prototype; and that this "big" announcement is really just a follow-on effort.
So this hype appears to be an oddly timed regurgitation of an old, small, tenuous deal. Regardless, this information helped fuel the stock rally.
*3. Investors Remain In The Dark
Incredibly, that June 9 promotion hit about two weeks after Vuzix got the SEC inquiry letter. At the time of the promotion, apparently only Vuzix managers knew about the SEC's inquiry.
But investors were in the dark.
Likewise, many didn't realize the company had been struggling and stumbling along since before it ever began selling smart glasses in late 2013. Losses altogether had flown to more than $61 million. Losses last quarter alone hit $3.8 million.
The company also reported dismal losses and gross margins for 2015 versus 2014:
(Source: Company SEC filing)
And Vuzix sales - which were already pathetic - have continued to deteriorate:
(Source: Company SEC filing)more...
Odyssey Marine Exploration (OMEX): A Shipwreck of Titanic Proportions
But its current project may be the most challenging yet ... a desperate dive to recover its own shipwrecked company.
While investors may find other viewpoints here, TheStreetSweeper sees one titanic disaster in the making. Here's why:
*1. Poof: Cash, Assets, Don Diego Hope
The company reported, as of March 31, operating cash had fallen to $2.8 million ... At the same time the company is burning through $2.7 million in just one quarter.
So OMEX appears to be operating on fumes.
At the same time, OMEX is struggling with debt deals and owns virtually no assets.
Filings state: "we have pledged the majority of our remaining assets to MINOSA, and its affiliates, and to Monaco, leaving us with few opportunities to raise additional funds from our balance sheet.”
OMEX's financial lifeboats recently have been anchored on expectations that Mexico approve the Don Diego permit. But Mexican authorities denied this critical application.
The Don Diego represents a Hail Mary business restructuring for OMEX and, in our view, another reason for investors to brace for failure. Read on….
*2. Mexico: Application Denied
Way back in 1994, the company began navigating the thrilling but choppy waters of undersea excavation and recovery.
OMEX found five major shipwrecks over those 22 years but lost $123 million in the process, Bloomberg reports.
In 2007, the company began a very public 5-year battle with Spain over gold and silver recovered from the "Black Swan" warship. OMEX lost the loot and a federal judge ordered the company to pay $1 million for "bad faith and abusive litigation."
In the midst of that public drama, the company restructured operations in 2010 to focus on deep water seabed exploration of minerals.
Much hope went into the Don Diego seabed deposit off the Mexico coast - considered the restructuring centerpiece - and shares ran up around $9 in early April.
Then on April 11, Mexico denied the company's environmental permit application amid concerns about the environmental impact on sea turtles. OMEX plans to dredge Don Diego's phosphate rock lurched to a halt and the stock took a 55% dive.more...
Digital Ally (DGLY): Why This Stock Will Get Chopped
TheStreetSweeper issues an investor alert on Digital Ally (DGLY).
Shares in consistently unprofitable Digital Ally have rocketed following last week's shooting rampage that left five police officers dead and more fighting for their lives.
As the gunman blasted away and the crowd panicked, police body cameras supplied by Taser International (TASR) captured video of the scene. With the nation focused on Dallas and other shootings, it's not too surprising that Taser shares soared 5.9% to $27.30.
Flying in under Taser's wings, DGLY surged from ~$4 to $7, bumped along and then topped out July 13 at $6.23 per share. This morning, the stock opened at $5.49 as people begin to realize DGLY is a poor copycat focused on an antiquated product.
TheStreetSweeper's executive bullet points below summarize why we expect the stock to plummet back to earth:
1. DGLY stock is up after the market has mistakenly aligned the stock with body camera market leader Taser International.
2. The vast majority of DGLY's revenue - 43% - comes from DGLY's in-car videos, not from body cameras, as the market wrongly assumes.
3. Compared with Taser, DGLY's product costs nearly two times more and offers inferior resolution, battery life and field of view.
4. DGLY's revenue has been dropping over the last 4 quarters; earnings remain negative. In contrast, Taser offers positive earnings and revenue is nearly 10 times greater than DGLY.
5. DGLY has attracted very, very little institutional ownership, only ~5%.
TheStreetSweeper's full details follow:
*1. No Comparison: Taser Owns The Market
The company's nemesis Taser International initially gained attention with its stun guns. But now the company has catapulted into the market-leading position for body cameras, controlling three-fourths of the body camera business in the United States.
Cops in cities from Dallas to Los Angeles to Washington wear Taser's state-of-the-art Axon body cameras. A key component is Taser's "Evidence.com" site ...
(Source: Taser Evidence.com)
Taser's Evidence.com allows police to log on and manage their body camera video.
Meanwhile, Digital Ally is focusing on a different product. Though the company began in 2003 as a bow-hunting product company, in 2006, it began shipping what is still its primary product - the old-time, in-car video camera. These DVMs or digital video mirrors make up the vast majority of company sales at 43%.
*2. Digital Ally: Product Miss
Yet investor and consumer interest is clearly focused on high-tech body cameras.
Somehow Digital Ally has gotten swept up in the excitement even though its body worn camera called "FirstVu HD" and "FirstVu" is a tiny portion of its business.
Digital Ally has found that its body camera sales are seriously lagging behind its old in-car products. Worse yet, last quarter, the body cameras lost even more ground:
(Source: Company SEC filing)
Though Digital Ally is a minor player in the body camera business, its cameras cost surprisingly more than Taser's:
According to company filings, Digital Ally's body cam costs nearly two times more at $795.
Digital Ally's specs fall short, too. These cameras depend on an external battery which provides less than half the battery life of Taser's camera.
Taser's video resolution and field of view also dwarf its small competitor's specs.
So it's no surprise that police departments don't want to pay nearly twice as much for a Digital Ally product that offers features about half as effective as Taser...
RadiSys Corporation (RSYS): Racing Toward A Radical Drop
All the good news has already been priced into RadiSys Corporation (NASDAQ: RSYS), creating a perfect jumping off point.
Now RadiSys looks poised for a radical hit.
The Hillsboro, Oregon-based computer server company has turned in consistent net losses for years. But the stock went ballistic recently when the company named Verizon as the customer that earlier placed a DCEngine trial order. RadiSys had hinted at the identity at least four months before. But the June 7 announcement kicked the stock out of sight.
So ... the announcement is the first reason TheStreetSweeper believes RadiSys has become radically overpriced and doomed to drop (other viewpoints here):
*1. Good News: Already Acknowleged
RadiSys investors had kicked the stock in the pants following its quarterly financial report released in May.
Investors were not pleased to learn that gross margins had dropped again year-over-year and sequential earnings losses had worsened.
So the customer announcement weeks later about the DCEngine server for the phone company worked beautifully to juice the stock by about 70%.
But RadiSys can't hold up under such a frothy valuation.
*2. Legacy Biz: Help Me, Help Me!
The RadiSys rise is unsustainable as sales continue their perilous downward spiral. Part of the problem is that 75% of the company's revenue comes from its old-line server business.
Unfortunately, this legacy business segment is dropping, dropping, dropping...
The sales dropped 15% in 2015 and 21% the year before.
Hmmm. What if Shark Tank's Mark Cuban scratched his chin and blurted:
"What's your margins?"
RadiSys would have to stammer out something like:
"Our margins are declining... Like crazy."
This chart below is a snapshot from a company presentation.
(Source: RadiSys presentation)
The chart shows that the company's legacy business "Embedded Products" has been enduring 24% to 20% margins for 1 1/2 years. And last quarter's margins dropped all the way down to 15%.
*3. Paltry Help: New Kid, DCEnginemore...
Copart (CPRT): Five Reasons To Terminate This Stock
Copart (Nasdaq: CPRT) has barely felt the losses now running cyborg-like through auto stocks after the British exit vote.
But that will quickly change.
As soon as the Copart double-digit exposure to the United Kingdom market becomes evident, even the Terminator himself could be expected to turn tail and run from this stock.
Copart is in the online junk-car business. The Dallas-based company sells recycled scrap cars to the public, vehicle dismantlers, exporters, etc. in the United States and elsewhere, including Britain.
Britain voted Thursday to exit from the European Union. Stock losses are extending as global markets consider the potential economic turmoil and the uncertainties. Now Copart is vulnerable ...
*About 18.7% of Copart revenue faces exposure to European concerns.
*Brexit is expected to exacerbate Europe’s declining used car sales.
*Any economic squeeze can cut driving, accident claims and Copart’s business.
*A sluggish economy also creates more uninsured drivers who typically just fix their cars, meaning fewer cars for Copart to salvage out.
*Since the Brexit vote, other auto stocks have suffered double-digit declines.
*Copart has ~$137m in cash … and a $96 million “demand for payment” of back taxes and penalties.
* Insiders are selling their stock.
StraightPath Communications (STRP): Investors Beware
StraightPath (STRP) fans haven't recognized it yet, but the Federal Communications Commission Chairman dropped the "C" bomb right on top of StraightPath.
"C" as in competition. Chairman Tom Wheeler told members of the National Press Club that America needs to "open up vast amounts of spectrum for 5G applications."
But Mr. Wheeler's interest in kickstarting the 5G frontier actually rips away some of StraightPath's mojo.
"...competition in the supply of backhaul remains limited and that can translate into higher prices for wireless networks and higher prices for consumers," he said.
So the big picture is that plans are to increase competition for licensed and unlicensed network providers.
Additionally, 5G networks won't even be available until 2020!
Enthusiasm over the possibilities of 5G high frequency spectrum has irrationally stretched StraightPath's stock price.
Now, the latest 5G excitement is actually a huge disappointment to the company. When investors realize this, we believe the price will quickly reverse.
Some key issues facing StraightPath:
*The company has a history of poor-to-no earnings.more...
SolarEdge Technologies (SEDG): Insider Selling, Rival Actions Cool Off This Stock
Just beneath investors' radar, SolarEdge Technologies (SEDG) is fighting a feud worthy of the infamous Hatfields and McCoys. There will be no "hog trial" this time around but today's revenge-fueled struggle would make those rival clans proud.
(Clan leaders William "Devil Anse" Hatfield, Randolph "Rand'l" McCoy. Source: tourpikecounty)
Indeed, SolarEdge's chief rival, Enphase Energy, is heating up the feud with the launch of a potential game-changer. One solar contractor predicts Enphase's new battery backup system for homes will make SolarEdge technology virtually obsolete.
And risks just keep piling up against this solar power systems inverter. (Inverters change solar panels' DC electricity into AC or alternative current for use by in-home appliances and community electricity grids).
When the gunsmoke clears this time, a most unfortunate loser will stumble out ... current SolarEdge stockholders.
Investors may find other viewpoints on Israel-based SolarEdge here. Meanwhile, TheStreetSweeper presents a brief executive summary, followed by details on the top reasons we dislike this stock.
Executive bullet points:
*Extreme insider selling exceeding $25 million. What do they know that the market has missed?
*Singularly focused rival Enphase pressures SolarEdge with new technology and severe, continuing price cuts.
*SolarEdge has been forced to cut prices. And its new rollout has been delayed by as much as half a year.
*Chinese vendors are crowding into the commercial side of SolarEdge’s business with bargain rate products, likely forcing more price cuts.
*1. Smart Insiders: Bid SolarEdge Stock Goodbye
Insiders have been unloading their company stock. Year-to-date, insiders have sold well over $25 million worth of stock - an action that could be a sell signal for other investors, too.
Indeed, insider buying is virtually nonexistent compared with insider selling:
Maybe insiders know something the market has missed ... something like the following huge risks....
*2. Grudge Match: Old Nemesis Plots Revenge - Aggressive Price Cuts, New Tech
Not long ago, Enphase Energy (ENPH) was a big ol' boy in the business.
The maker of solar microinverters claimed bragging rights until SolarEdge came along with a cheaper alternative and stole away market share.
A grudge match ensued. Now Enphase is determined to shove SolarEdge aside by introducing new technology and aggressive price cuts.
*3. Kicker: "Rolls Royce" Enphase Ups The Game
"Enphase ... is the Rolls Royce of all inverters in the industry," according to a solar contractor who spoke with TheStreetSweeper.
He said Enphase has introduced a battery backup for homes that is incompatible with SolarEdge.
The SolarEdge technology involves DC current that must be converted to usable energy before it can charge a battery. Enphase's microinverter, however, has already converted DC to usable AC energy that charges the battery.
The new AC battery is part of the Enphase system, including microinverter, networking hub and an energy tracking system that lets homes and businesses monitor how much solar energy they are generating and using. Then the system determines whether the solar energy should be stored or used.
(Source: Enphase energy storage system)
Enphase launched the AC battery last month in Australia and New Zealand as part of its international expansion. The United States launch is planned later this year.
"We expect the initial demand to be driven by installers looking to retrofit existing residential solar PV systems," Enphase executive Nathan Dun told PV Magazine. "Emphase expects the next wave of demand to be driven by new solar PV system owners enticed by the elegance and simplicity of our solution"
If people like the new Enphase system well enough, SolarEdge could lose serious market share...more...
Kemet Corp. (KEM): Perfectly Tuned To Break Investors' Hearts
If Kemet Corp. (KEM) were a country crooner, it would be singing "There's A Tear In My Beer" as its heartthrob walks out the door.
Indeed, informed investors couldn't be blamed for walking away as downside risks mount up for this South Carolina manufacturer of capacitors - battery-like gizmos that store electric energy.
Kemet entities have been slapped with investigations or inquiries into alleged anti-competitive actions by: *The United States; *China; *Europe; *Brazil; *South Korea; *Taiwan; *Singapore; *Japan.
Yet the stock turned upward as Kemet reported a quarterly earnings miss and $183 million revenue down 5% year over year; as well as settlement of one of these investigations.
This misunderstanding-fueled rally grows more ludicrous when we consider three factors.
*First, filings show lawsuits, verdicts and investigations - for March 2015-March 2016 alone - cost Kemet about 6.1 billion yen or $58 million.
*Second, price-fixing probes are not over yet. The company and subsidiaries are defendants in multiple ongoing global investigations into price fixing and bid rigging conspiracies by capacitor manufacturers.
*Third, Kemet may be on the hook to pay ~$400 million to acquire the "one who done him wrong."
While investors may find other viewpoints here, TheStreetSweeper's top executive bullet points on Kemet's downside risks include:
*Numerous rivals scratching and clawing for the same business
*Unreasonably expensive planned total acquisition that faces more price-fixing inquiries/investigations
*Uncertain future costs associated with its planned acquisition, which has already pleaded guilty to criminal price-fixing
*Junk bond ratings
*Excessive executive compensation
*Insiders yell, "Sell!"
Below, TheStreetSweeper presents details on why we believe Kemet stock is perfectly tuned to fall back toward sanity.
*1. Calling Dr. Phil: Troubled Relationship Begins
Kemet paid $50 million three years ago for a 34% stake in Nec Tokin - the partner it intends to buy in its entirety.
But Nec Tokin has pled guilty to criminal price fixing. The US Department of Justice determined that from April 2002 to December 2013, Kemet's partner had been "conspiring ... to fix prices" for capacitors in America.
FBI Special Agent David J. Johnson stated: “For over a decade and through various financial crises, NEC Tokin has exploited American consumers and fixed the price of capacitors..."
Investigators said the company had set prices using code names and misleading justifications "to cover up their collusive conduct."
Nec Tokin pleaded guilty Jan. 21, 2016 and was sentenced to pay a $13.8 million criminal fine.
Despite the market's misunderstanding, Kemet continues to defend itself and its entities (pages 20-21) in ongoing antitrust lawsuits.
But how much has Nec Tokin gotten to Kemet thus far? .... Read on ...
*2. Antitrust OOPS: When "Good" Investments Turn Badmore...
GenMark Diagnostics (GNMK): Seven Signs of Sickness
GenMark Diagnostics (GNMK) stock is just about to get a shot of reality. And the jab will go straight into stockholders' hearts and wallets.
GenMark is a never-profitable Carlsbad, California company that sells diagnostic testing equipment used to sniff out viruses, bacteria and problems such as sensitivity to Warfarin. The company is struggling with:
*Financing is already registered and dilutive stock selling could be imminent.
*Event fueling the company's stock rally - CE Mark designation - is now worthless.
*A common, virtually indistinguishable product.
*Wealthy dog-eat-dog competitors, more favorably valued.
*Highly compensated, low-performing management.
Investors may find other viewpoints here. Meanwhile, TheStreetSweeper provides details of the top seven reasons we believe risky, expensive GenMark stock is supremely poised to swoon.
*1. Wait For It, Wait For It: Stock Offering
The last thing investors want to see is a big stock offering that will dilute the shares they're holding.
But that's exactly what GenMark has ready to go. Stock worth $30 million (over 3 million shares) may now be sold at any time:
(Source: Company SEC filing)
Shareholders won't have long to wait to feel the sting of dilution...
What's more once those 3 million or so shares are sold, GenMark can always go back and clean off the shelf. An overhang of another $95 million worth of potentially dilutive stock - about 10 million shares or so - is just waiting to be sold at the drop of a hat.
The timing is perfect to sell stock because shares have been flirting around the year's record.
Why has the stock popped?
Ah, that's another story. It's a story that ultimately turned on GenMark like some sort of mad scientist ...
*2. Company's CE Mark: Now Worthless
The company desperately needed good news after investors fled the stock in early May. People were irritated by the earnings report showing revenue had slightly beaten consensus as it sluggishly moved to ~$11 million. Earnings had missed consensus, falling more deeply into the red at $-12.96 million.
The stock reflected company struggles as the price dropped from around $5.70 to $5.25 per share.
(Source: Yahoo Finance)
GenMark had been chasing the CE Mark since 2012. Managers could have expected CE news to drive up the stock as it cleared the way for ePlex testing system sales in Europe.
Seemingly fortunate at the time, GenMark announced on June 8, 2016 that it had received its CE Mark designation. Sure enough, the stock smashed above $9.40 per share.
(Source: Yahoo Finance)
Then the unexpected happened. Less than three weeks after GenMark got its CE Mark, Britain shocked the world by voting to exit the European Union.
The historic trade barriers previously knocked down by the CE Mark have now jumped back up. GenMark wasted all those years and millions (~$3 million) pursuing the designation.
Unfortunately, Britain hasn't negotiated a trade deal since the European Union materialized in the 1970s. So now the sovereign state is scrambling ... at wit's end, apparently ...
to negotiate new trade arrangements.
(Source: The New York Times)
So everyone had pinned great hope on the newly CE Mark-approved ePlex launch in Europe in the third quarter.
But the CE Mark is now worthless to GenMark.
*3. The Big Sting: Executive Compensation
While the company loses millions, executives are raking in millions. Our chart shows top executives' compensation.
(Source: Company SEC filing)
Nearly $9 million - including $3 million for the chief executive alone - seems generous.
After all, GenMark lost more than that last quarter ... nearly $13 million.more...
Surgery Partners (SGRY): Overpriced Stock Poised To Become Tomorrow's Laggard
Surgery Partners (SGRY) may look like it's dressed to party. But when the lights come on the stock will reveal its true common, indistinguishable gawky self. And investors will want to run the opposite direction.
So today's wildly overvalued SGRY is poised to become tomorrow's laggard.
The company stock hit the Nasdaq last October, opening at $17.55 per share, far below the expected $23-$26 range. The disappointed company focusing on short-stay surgical centers needed every penny possible to help repay more than $1 billion in debt.
We've been looking at what you pay for the stock versus what you get for it.
Indeed, SGRY appears to be the type of stock billionaire investor Carl Icahn referred to when he issued a recent warning. He said stock prices have been pushed artificially high but lack the economic fundamentals to support those prices.
The guy who grew up on the mean streets of Queens recently rattled cages of the nation's shareholders when he predicted a "day of reckoning" will correct this imbalance (video here).
Investors may find other viewpoints here. Meanwhile, check out TheStreetSweeper's top six reasons we consider SGRY a "day of reckoning" poster child...
*1. Overpriced Today: Laggard Tomorrow
SGRY sports an outlandishly high valuation ... A price-to-earnings ratio of 639.
Stocks with high valuations are shouting to investors, "We're really expensive. You can bet it'll be tough to live up to these expectations!"
The Wall Street Journal reports that the most expensive stocks - measured by various valuation metrics - have underperformed the S&P 500 by 5 percentage points yearly, lagging in 25 of the last 35 years.
Rivals Surgical Care and AmSurg are bargains compared with SGRY. In each of four critical measurements, SGRY comes out in the red:
We can't imagine how anyone can justify paying 25 or 42 times more for a company that offers a fraction of competitors' value .... and is unprofitable to boot.
*2. Earnings: Extremely Inefficient As Competition Rises
Small surgical centers are popping up all over the country. Competitors are vying for every other street corner and every doctor who wants to perform surgery on every hurt knee or misaligned jaw.more...
Command Security(MOC): Beware The Hype
TheStreetSweeper issues an alert on Command Security (MOC), a security stock that blasted off Monday morning on misunderstood hype.
Here are five top reasons TheStreetSweeper believes this stock is poised to kill potential investors' portfolios:
*Contract Noise Is Nonsense.
Though the stock is settling down a bit now, shares skyrocketed early June 6 when MOC announced what seemed to be a new contract.
Here's how the stock reacted:
Relypsa (RLYP): Eight Reasons We Wouldn't Run Away & Join This Circus
Relypsa (Nasdaq: RLYP) is a misunderstood dog-and-pony show that shines a light on its one and only trick pony, Veltassa.
Relypsa fans keep the show going by sticking a carrot out in front of investors. Indeed, the company's oh-so-benevolent stock promoters - plus a short squeeze that we believe is now over - have managed to push the stock to nosebleed levels. Now there's nothing but air left in the stock.
Investors may check here for other viewpoints on the Redwood City, California-based chronic money-loser with one lonely drug to its name and a cash burn rate of ~$300 million. Meanwhile, here are TheStreetSweeper's top eight reasons this stock is riskier than a colicky circus pony:
*1. Sole Drug: Cheap Castoff
The market has missed a telling issue regarding Relypsa and its only drug.
The company acquired the potassium-lowering drug, Veltassa, for just $12.5 million, according to the SEC filing.
But the seller, Ilypsa, didn't even bother to keep a percentage of any royalties:
"We do not have any royalty obligation under the IP License Agreement with respect to Veltassa, and in March 2013, we satisfied our sole milestone payment obligation with respect to Veltassa with a payment of $12.5 million...
"While the IP License Agreement does require that we make certain royalty payments on sales of covered products, other than in respect of sales of Veltassa, we are not currently developing any covered products under the IP License Agreement."
If the developer had any faith in Veltassa's intellectual property, it would have never sold that property on the cheap ... especially without hanging onto at least some royalties.
Ilypsa just wanted to unload the drug.
Relypsa's sales indicate the seller was smart to take the money and run... Read on ...
*2. Free Drug, Doc? Thanks, Not Really
Veltassa got cleared last fall to treat excessively high blood potassium or hyperkalemia. But not before the FDA had attached the dreaded "black box" warning label. The agency concluded the drug dangerously binds with other oral drugs, thus decreasing their effectiveness.
The stock got crushed because the FDA's strictest warning greatly limits the drug's possible uses - specifically not in critical life-or-death situations. Relypsa has rushed to submit more data in hopes the FDA might lift the black box warning.
The company began shipping the drug late last December. But Relypsa can barely give the drug away:more...
Mitek Systems (MITK): Looking For A Nose-Dive
We occasionally see company insiders sell shares to pay their massive tax bill (Facebook guru Mark Zuckerberg's 2014 tax bill hit an estimated $2 billion plus).
But Mitek Systems Inc. (Nasdaq: MITK) insiders have steadily unloaded massive amounts of stock since November - when the share price began rocketing by some 170 percent to the current ~$9 per share ... ah, yes, maybe the peak before the plunge.
Altogether in that timeframe, Mitek insiders have dumped about $9 million worth of company stock.
That's right. And that's why insider selling tops TheStreetSweeper's list of seven good reasons we think Mitek stock is poised to flip faster than Madonna in her famous on-stage nose-dive. Investors may also find other viewpoints on Mitek, the San Diego-based mobile imaging technology and software provider here.
*1. Insiders Yell: "Sell! Sell! Sell!"
Insiders' trading trigger fingers started getting itchy when the stock run really picked up speed back in November 2015:
(Sources: Company SEC filings; Nasdaq.com)
It's always a concern when company leaders start selling their stock.
But selling of this magnitude is extreme.
It could suggest that insiders may be losing faith in their company's future, may understand something the rest of us don't or may be wanting to sell at the peak before the stock breaks down.
*2. Company's Intellectual Property: Weak
A chief worry about Mitek goes straight to the foundation of its business. The intellectual property is weak.
Here's why ...
A. The company thought so little of its own IP that it withdrew its patent infringement lawsuit.
"Let 'em have it," Mitek essentially said in 2014 after dropping the lawsuit against Top Image (TISA), explaining that "the cost of litigating the case would be higher than any potential financial benefit to Mitek."
Both parties agreed to cover their respective legal costs. That was it. Settlement reached.
Top Image stated: "Mitek realized that their case against TIS was weak and their patent portfolio was ineffective."
B. A patent infringement lawsuit bloodies Mitek's nose - and damages a major revenue source.
Mitek and former client USAA had been battling it out in court for years.
Then Mitek suffered a major blow in mid-2014 when a federal court threw out its infringement claims against USAA.
In lockstep, Mitek's chief technology officer suddenly departed "to pursue other opportunities."
The sucker punch: Under the settlement, USAA now gets to use Mitek's check deposit software for free.
So Mitek has forever lost part of a revenue stream.
While Mitek sustains this revenue loss, the company finds itself in the midst of a growing tangle of fierce competitors all vying for the very same customers.
But first, guess who proceeded to show up Mitek? Ol' nemesis USAA ... Read on...more...
Vuzix Corp. (VUZI): Let The Caterwauling Begin
Struggling Vuzix (VUZI) reported losing millions last quarter on revenue that dropped 55% from a year earlier. Yet stock in the video eyewear company quickly returned to absurdly lofty levels - - afloat on paid promotions and a lingering misunderstood story.
TheStreetSweeper believes the 26 cents per share losses might not look too bad compared to what may come next.
Investors may find other viewpoints here. Meanwhile, consider TheStreetSweeper's top eight reasons why all the screaming about this stock will likely soon turn into caterwauling:
*1. Hype: Paid Stock Promoters
Vuzix stock has fallen into the unfortunate hype-fest category. It has been promoted by at least 21 professional campaigns.
Paid promoter MicroCapResearch pushed out a lengthy Vuzix promotion just last week, on May 17. On Tuesday, May 24, various posts linked to the promo.
At the bottom of the long newsletter promotion, a disclosure shows some generous third party dished out big bucks to promote Vuzix:
Also, out of the goodness of its heart, Star Media paid $15,000 for another recent "investor awareness campaign" hyping Vuzix.
Paid stock promotions like these offer an excellent way to spot a desperate, often troubled company. Stable companies with real products and a real future don't need or want such stock promotions.
Indeed, some of the recent fluff picked up by investors came from the company itself ...
*2. Misunderstood: Hyped Announcementmore...
MGT Capital: Heading Retail Investors To The Slaughterhouse
MGT Capital Investments (MGT) just may be the most self-promoted, worthless, risky stock we've ever observed.
Now, in our opinion, the company is poised to lead retail investors gently to slaughter.
You see, MGT stock is flying on tweets and Facebook page promotions from controversial wild man, John McAfee. The fallen icon will become the company's "proposed Executive Chairman and Chief Executive Officer," the company announced.
And MGT has bought Mr. McAfee's old anti-spy asset, D-vasive. Though the press release doesn't explain this, D-Vasive is a product of Mr. McAfee's Future Tense Secure Systems,, the company which will now be consulting for MGT. MGT paid $300,000 cash and millions of cheap-o shares for the questionable privilege of taking Mr. McAfee's languishing property and try to breathe commercial life into it.
Now Mr. McAfee is hyping his new company. And unwary stockholders are buying into tweeted comments that we believe are material - and deserving of Securities and Exchange Commission attention.
In a nutshell, it becomes clear who benefits from this deal:
*Mr. McAfee gets paid for something he already owns.
*The company pays for D-vasive, Mr. McAfee's anti-spy property that has been virtually ignored.
*Mr. McAfee gets a job.
*Newly issued shares increase value for Mr. McAfee.
*A low-value app gets some fleeting attention.
But this MGT combo is now perfectly priced for a tooth-rattling drop when investors realize the massive risk they're holding onto right now.
*Wild Man Becomes CEOmore...
MGT Capital: Retail Investors To Get Herded To Slaughter House
TheStreetSweeper almost hopes the MGT Capital Management (MGT) pump will hold. If it does, we'll tell investors all about one of the most incredibly over-hyped, useless stocks we've ever observed.
MGT stock is flying on word that the world's most controversial once-super-wealthy man who's essentially hit the skids - John McAfee - will become the company's "proposed Executive Chairman and Chief Executive Officer."
The stock is hyped by formerly super wealthy McAfee who watched his net worth of more than $100 million nose dive to about $4 million in 2009.
You see, MGT paid $300,000 cash and 4.76 million cheapo shares to take McAfee's property off his hands.
The company has going concern issues and even filed a late 10-Q ... blazing red flags that suggest the company is headed down and out.
So it's no surprise this desperate duo - McAfee and company - are promoting the heck out of McAfee's old "D-vasive" asset.
But it seems they can hardly give D-vasive away. We'll get into the miserable downloads ... and oh so much more.
Stay tuned....we're working up a full report explaining how unbelievably risky this stock is at this level.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in MGT and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to firstname.lastname@example.org...
Coeur Mining (CDE): Debt-ridden, Overvalued Miner Just Discloses New $75 Million ATM
Coeur Mining (NYSE: CDE) shareholders may have missed a series of under-the-radar actions that pose additional significant risk to their investment.
Coeur netted $367 million in losses last year and reported half-a-billion in debt. Nevertheless, the junior miner managed to dig its way into stock portfolios of everyone from the next-door-neighbor to teachers' funds to retirement funds.
The Chicago-based silver and gold miner and its peers have risen over the last few months in concert with improved metal prices.
But let's step back in time to about an hour after the closing bell rang on Friday, May 13th. Most traders had just loosened their ties and begun enjoying their weekends when ...
Bam! At 5:11 p.m., Coeur filed a surprise ATM document with the Securities and Exchange Commission.
*The Late-Hour Stock Offering Notice
We knew they needed capital but it came even earlier than we had anticipated. Indeed, that after-market notification cleared the way for Coeur to sell up to $75 million worth of stock using the at-the-market filing.
What the ATM filing (here) means is this: Coeur and BMO have joined hands to raise cash through stock sales.
The more stock that hits the market, the more dilution to the stock already in shareholders' hands.
And that $75 million offering? Unless the stock price falls out of bed and disrupts Coeur's plan ... it's likely just the beginning of the dilution coming at shareholders.
Coeur is like the hungry gorilla you try to feed just one banana. The beast pounds his chest and shrieks for more ... and more ... and more.
So the cash-hungry miner will demand far more, we believe, to stay in the game after the entire $75 million-worth of stock sales is shot.
The company will probably require three or four times more for current operations and expansion (two recent acquisitions cost ~$480 million).
Coeur will likely go on diluting stock until investors fall out of love with the story.more...
Trupanion (TRUP): This Dog Insurance Stock Is Begging To Drop
Trupanion's (TRUP) recent stock rally may have the market wagging its tail but we've begun digging into the fundamentals. Consequently, we're yelling "Bad dog!" at the wayward pet insurance company.
Seattle-based Trupanion is a pet insurance company founded in 2000 by young technical school graduate Darryl Rawlings. Mr. Rawlings initially started selling cigars from his car to aficionados in western Canada. After a few years and a retail presence, he snuffed out the cigar biz and began selling pet insurance. The company went public in 2014 and has accumulated $74 million in losses since then.
Investors may find other viewpoints here. Meanwhile, TheStreetSweeper offers seven good reasons to send Trupanion back to doggie obedience school:
*1. Over 2 Million Shares: Looming Stock Sale
Within 60 days of April 1 – that would be June 1 - insiders will be able to sell ~2.19 million shares of stock. That boatload options poses a potentially significant risk of dilution and tremendous pressure on the stock.
Our chart breaks down warrants, options, restricted stock units and convertibles that executives and directors will be allowed to convert to common stock and sell within a month:
(Source: Company regulatory filings)
That stock release is a negative catalyst for current shareholders. But still more stock-selling issues dog Trupanion ...
*2. Insiders Yell, "Sell!"
Trupanion's own CEO pushed the "sell" button just last week. Under his auto trading plan, CEO Darryl Rawlings sent 3,500 shares to the public market at just about $12.63 per share.
(Source: Company SEC filing)
In fact, Mr. Rawlings has dumped 17,500 shares of Trupanion just since March:
The next graphic indicates insiders' massive selling sentiment:
Since February 2015, insiders have stayed busy selling stock. Stock sales have sometimes been heavy single transactions, such as the 290,620 shares unloaded by chief investor Highland.
Why is this selling happening? Along with the stock's recent high price enticing them to sell even more, insiders may also be considering the company's position. And it's really not encouraging at all ...Read on ...
*3. Google Search: Trupanion Fares Poorlymore...
Adamis Pharmaceuticals (ADMP): Compounding Risk
A private company that is a walking liability has been acquired by Adamis Pharmaceuticals (Nasdaq: ADMP), posing an incredible danger to the public.
Yet when Adamis announced it was paying ~$9.7 million in stock for the little Arkansas drug store dogged by a big product recall, the uninformed market cheered.
Incredibly, fevered buying continued, sending Adamis shares this morning to a multi-year high of over $9 per share.
TheStreetSweeper presents six key risks poised to hammer this stock back down to sanity.
*1. Terrible Acquisition
Shares blew up on news that Adamis would be acquiring US Compounding in a stock deal worth nearly $10 million.
What investors didn't understand was what Adamis got for its investment.
Adamis has acquired a company that recently recalled ALL of its sterile products nationwide, at the request of the Food and Drug Administration. In fact, the recall is ongoing (here) for more than 70 veterinary products.
Click here to see the recall list affecting patients, clinics, providers and hospitals nationwide.
All US Compounding sterile products were recalled because the FDA is concerned about sterility.
The recalled human and veterinary products were distributed from March 14, 2015 to September 9, 2015. Before the recall, customers had filed 108 formal complaints with the FDA about US Compounding products.
When the FDA walked in one day last August to inspect the little drug store, agents uncovered their own long list of issues. The problems they discovered spanned 11 pages, here.
Nevertheless, under the acquisition agreement, Adamis will pay the US Compounding CEO more than 866,000 shares plus a $300,000 yearly job with Adamis.
And what will Adamis receive for its investment?
In return, Adamis has gotten $5.7 million worth of debt, the challenge of trying to squeeze some revenue from a troubled drug store, plus a huge dose of liability exposure ... as evidenced by that company's recall "due to deficient practices."
If Adamis had been serious about building a compounding business, it would not have bought a company with deficient practices, sterility concerns and a massive recall under its belt.
*2. Why US Compounding Put Itself Up For Sale
US Compounding found itself in a pickle. Its name had been indelibly tainted by last winter's recall.
Every recalled item from injectable aspirin to injectable testosterone had begun piling up in the little drug store at 1270 Jims Lane, in Conway, Arkansas.more...
Great Panther Silver (GPL): Perfectly Priced To Cave In?
Great Panther Silver (NYSE: GPL) stands at the brink of a teeth-chattering stock decline.
Over the course of the past year and a half, stock in the Canadian silver mining company settled in below $1 per share, sometimes falling to 30 cents.
Then shares suddenly blew up. Did this happen because the company hit a rich vein of silver?
Not at all. Rather than Panther suddenly hitting on fortune and reversing shareholders' negative return on equity, the stock has been shored up by ambitious stock promoters. Now Great Panther appears perfectly priced to drop.
Here are the top six reasons TheStreetSweeper is shouting, "Look out below!"
*1. Why Great Panther's Stock Is Up: Jonathan Lebed Special
After seven months of trading between ~40 cents and ~$1 per share, Panther stock suddenly blew up in late April:
What happened? Well, Panther can primarily thank a well-known stock promoter.
Indeed, last Thursday, on April 28, 2016, National Inflation Association sent out a stock promotion to thousands of email recipients. The hype began like this:
(Source: National Inflation Association)
Despite the name of the sender, this email and others like it have nothing to do with the organization's purported mission of fighting inflation. NIA is not some quasi-governmental agency sworn to help people but instead is all about enriching the NIA.
Jonathan Lebed is the main man standing behind the NIA's flimsy curtain of respectability. Mr. Lebed attracted national attention in 2001 when the Securities and Exchange Commission accused the then-teenager of manipulating stock in a pump-and-dump scheme. Without admitting any wrongdoing, he settled for $285,000.
Mr. Lebed commented:
(Source: New York Times )
Mr. Lebed has been a key figure in stories by TheStreetSweeper and publications such as The New York Times, which wrote of Mr. Lebed's stock trading activities:
"This type of stock fraud is hardly victimless. When a stock price rose from $1.38 to $4.69 on the strength of his false recommendations, then fell to $1.88 after his manipulation stopped, there were winners and losers."
The recent NIA/Johnathan Lebed promotion on Panther is merely the latest in a long string of hype that has inflated the stock.
Mr. Lebed has been cheerleading Panther periodically since 2014. Back in August 2014, Lebed.biz emailed a promotion to thousands mentioning Panther under its Toronto Stock Exchange trading symbol of GPR. The hype said in part:
There's a huge fundamental problem with promoted stocks, arguably most especially those promoted by Mr. Lebed.
Such stock promotions themselves push up the share price. So the stock price increase typically is not a reflection of any good business practices or even good luck experienced by the company.
That means the share price will virtually always drop. Because there's nothing but fluff supporting the price.
*2. Kiss Of Death: Rodman & Renshaw
Panther investors need to understand two unfortunate, crucial actions by investor Rodman & Renshaw.
First, Rodman & Renshaw - which was a key institution investigated during the Chinese stock fraud issues of 2010 to 2013 - raised its target price for Panther from $1.10 per share to $1.50 on April 14.
Panther stock rose.
Next, on April 20 - six days later - the firm inked a deal with Panther for a $10 million at-the-market (ATM) facility.
By that time, the stock had jumped 33 percent from the day of the price target upgrade to $1.48 on the day Panther and Rodman & Renshaw signed the deal.more...
Back To Earth For Skyline Corp. (SKY)
Manufactured home purchases are continuing to decline in market share.more...
Almaden Minerals (AAU): Six Reasons Why This Stock Is Fool's Gold
Almaden Minerals (AAU) stock has shot up on misconceptions surrounding a highly speculative gold mine projected to cost more than $1 billion, while the company has only a measly $2-or-$3 million in the kitty.
Meanwhile, promotions have pushed the unprofitable company’s stock even as losses race on beyond $59 million.
Before any more investors put another penny into this kettle of fool’s gold, we present these executive bullet points that point to downside risks:
1.The company kitty contains only several million dollars, yet its sole mine prospect, the Ixtaca project, would cost over $1 billion total; $28 million for construction alone.
2.Ixtaca’s large pits appear to be economically marginal or unfeasible, suggest notes by authors of a preliminary study.
3. The company justified a likely pending stock offering by pitching its $6.5 million option deal to buy a Nome, Alaska mill as a way to reduce Ixtaca expenses.
4. Unaware of the likely stock dilution, the market actually pushed up the stock price ... primarily thanks to professional stock promoters.
5. Some institutions have recently sold out of their Almaden holdings.
6. Almaden's largely inferior financial position, low return on equity and other notable weaknesses spurred a recent and rare "Sell" rating.
TheStreetSweeper offers the following six reasons that Almaden appears precariously poised for a huge decline:
*1. Ixtaca Project: Risky $1 Billion Bet
Hype surrounding a study indicating possible gold and silver reserves at its Ixtaca project in Mexico escalated the stock price some 70 percent almost overnight to a 52-week high. But the market doesn't realize that any Ixtaca mining is projected to bust the budget.
Construction costs alone, according to the pre-feasibility study, would take $28 million. And total initial costs could reach or exceed a whopping $100.2 million.
Stunningly, construction costs plus sustaining costs associated with the Ixtaca project are expected to exceed $1.1 billion (table 1-5) - practically a thousand times greater than Almaden's cash reserve.
Yet Almaden's cash is a tiny, tiny sliver of that amount.
(Source: Company SEC filings)
Our estimates are based on cash reserves falling to just $6.2 million on December 31, and a burn rate of about $2.47 million a quarter.
Projecting those assumptions over 1 ½ quarters, cash has now probably dropped to between $2.5 million and $3.7 million … about 10 percent of construction requirements, about 2 percent of needed initial capital and a fraction of a percent of the sustaining expenses, assuming mining ever takes place.
*2. Non-Cherry Picked Pit: Negative Financial Returns
Ixtaca’s large pits - which were not selected for study - appear to be economically marginal or unfeasible, suggest notes by authors of the preliminary feasibility study.
While the pits that were selected for study may produce minerals worthy of mining and could perhaps pay back in 2.6 years, authors say it’s all very risky …
“The economic results are based on the potentially mineable tonnages in the selected ultimate pit…The reader is further cautioned that the preliminary economic assessment is preliminary in nature, and that there is no certainty that the preliminary economic assessment will be realized.”
Most importantly, authors wrote:
“The selected (undiscounted) ultimate pit limit is chosen where the incrementally larger pits produce marginal or negative economic returns.”
So in a nutshell: the larger pits likely will pay off very little or won’t pay off at all.
*3. Previous Action: Dilution Looms
Just last October, Almaden announced what amounts to three years of stock dilution required to buy a mine that was mothballed over seven years ago.
“The Rock Creek mill only operated for several months before the mining operation was curtailed in 2008 and has been kept in excellent condition during subsequent care and maintenance.”
The old equipment will be dismantled (Almaden contends in an email to us that the equipment was used six weeks and has been on “care and maintenance” since it was mothballed back in 2008). Then the equipment will be barged 4,300 miles from Alaska to Ixtaca east of Mexico City, Mexico, for possible use at Ixtaca.
Almaden’s corporate development vice president, Donald McDonald, told TheStreetSweeper that the company has depended on stock offerings and joint venture-sales deals to operate for 30 years. And “continued development activity at Ixtaca is subject to our ability to raise capital from equity, debt and/or other traditional sources…”
So the deal is poised to dilute shares if Almaden proceeds with the option to buy Rock Creek by 2018.
Yet the market happily bought into the story.
Here’s why …
*4. Hello: Stock Promoter
Almaden’s stock recently went crazy after the market bought into an e-newsletter campaign launched by professional stock promoter Broad Street Alerts.
On April 7, 2016, a release headlined, “Compelling Gold and Silver Project at Almaden Minerals,” promoted the company report, here. The author was paid up to $250 a shot for redistribution rights and Broad Street cautions:
“Our reports/releases are a commercial advertisement and are for general information purposes ONLY. We are engaged in the business of marketing and advertising companies for monetary compensation.”
TheStreetSweeper asked if Almaden managers were aware of the Broad Street promotion or made any sort of payment to the firm or its associates.more...
Why Real Industry (RELY) Can't Turn Net Losses, Recycled Aluminum and Face Cream Into Gold
Real Industry’s (NasdaqGS: RELY) mishmash business of selling face cream and recycling aluminum is unreal in and of itself. Then mix in its price-to-earnings ratio…
Stocks trading at extremely high P/E ratios are great stocks to avoid. Overvalued stocks are more likely to suffer future losses than stocks trading at lower P/Es.
Add the enormous P/E ratio to recent insider selling and investors begin to get a glimpse of numerous downside risks piling up against Real.
Investors may find other viewpoints here. Meanwhile, let's consider those ramping risks:
*1. Net Carry Forward: Not Real Revenue
A couple of promotional pieces, here, have apparently been misinterpreted, resulting in support for Real’s stock price. The piece comments that the company operates on a plan of taking tax advantages based on net operating losses (NOLs).
An NOL is not the way to build a business.
Only a truly troubled company would try to build a reputation on taking a tax advantage based on losing millions of dollars.
Yet someone holding shares of the stock has gone out and promoted that effort on the Seeking Alpha financial website.
The author added: "We are happy with the performance so far. We didn't buy the stock only for its aluminum business, we bought it because of the NOLs, and the management's disciplined capital allocation."
Racking up losses and calling them tax benefits - and then having someone crow about it - may work for a little while.
But to take advantage of those losses, the company has to have a positive operating income - something Real has missed in three of the last four years.
The overarching issue is this: Organic growth is the lifeblood of solid companies. Any growth – and all planned growth for Real – depends on acquisitions and NOLs. That's not a great growth plan.
*2. The Foundation: Rollup Company
At its very foundation, Real is a rollup company.
And Wall Street is strewn with battered remnants of rollup companies much like Real. Studies show that 70 percent to 90 percent of mergers and acquisitions fail. Failures are undoubtedly even greater for rollup companies with acquisition after acquisition after acquisition.
What happens is that all too often, companies simply choose the wrong candidate, pay too much and don’t know how to integrate the new business, suggests Harvard Business Review.
Unfortunate mergers include Daimler-Benz and Chrysler, which culminated with Daimler-Benz spending hundreds of millions to sever the deal after management realized lower-income folks didn’t fit with the luxury car business; and Kmart and Sears, a mishmash of poor inventory investment and sub-par locations that has left the retailer's stock price whimpering to an all-time low.
*3. Former Subprime Lender: Operating Losses Grow
Since emerging from bankruptcy proceedings initiated in 2010 under the legacy business called Fremont – a subprime loan lender - the company has reported significant net losses from business operations:
(Source: Company SEC filings)more...
BioPath Holdings Inc. (BPTH): Why A Bad Golf Company Won't Make A Good Gene Therapy Company
BioPath Holdings Inc. (Nasdaq: BPTH) has swung and sliced to the right. Now it hopes investors will run after the ball.
The company spent six years fruitlessly trying to make a buck selling ugly pants, clashing shirts and other golf paraphernalia. It eventually made the unlikely transformation into ... gene therapy.
But BioPath is still missing the ball and almost certainly will continue to do so as this company attempts to produce a drug delivery platform.
Indeed, the new company presents these massive risks for investment portfolios:
* Reverse Merger; Inexperienced Management: The CEO/CFO/Treasurer/Chairman/President reverse merged a golf company to create a biotech. He is among the company's four leaders with virtually no experience in biotech.
* Unfortunate Supporter: Recent support from Rodman & Renshaw is good reason for investors to avoid BioPath.
* Uncertain Revenue Generation: Any possible product sales are distant dreams. The top drug candidate is only in Phase II study. The second candidate is approaching Phase II. So the prospects must get through one to two more phases of study before even going after FDA approval to market the drug.
* Fierce Competition: No one knows whether the drug candidates will succeed and some experts are skeptical. Meanwhile, many established companies are developing strong therapies for the same patients.
* Low Institutional Interest: Five institutions have sold out, including a particularly noteworthy investor.
* Stock Dilution Looms: BioPath's cash has fallen to an estimated $7.65 million. At a $1.25 million quarterly burn rate, it will take a significant cash transfusion to proceed with trials and business operations. A big ATM brimming with share dilution potential is poised.
Investors may find other viewpoints here. Meanwhile, here are details on the top six reasons TheStreetSweeper is convinced BioPath's drug game will be no better than its golf game.
*1. Odd Beginning
So it all began in 2000 when Ogden Golf Corp. opened and began selling golf items in Ogden, Utah.
After six straight years of losses and nothing to show for it but over-tapped friends and family, the board apparently realized the golf course would not drive the company straight to wealth and happiness. So managers registered with the Securities and Exchange Commission, began selling shares for 50 cents apiece and looked around for business ideas.
They found that idea in the most unlikely of places ...
*2. Reverse Merger; Inexperienced Management.
Two years after Ogden Golf closed, the CEO/CFO/Treasurer/Chairman/President decided to reverse merge his golf company to create BioPath Holdings in 2008.
But, while Peter Nielsen may know golfing, he lacks biotech or healthcare leadership experience. Yet here he is - the CEO, CFO, treasurer, chairman and president of a Bellaire, Texas biotech - albeit a biotech that has failed to advance a product as far as Phase III in eight years.
Peter H. Nielsen. Mr. Nielsen is a co-founder of Bio-Path, serving as its Chief Executive Officer, President and Chief Financial Officer/Treasurer and Chairman of the Board since 2008. Mr. Nielsen has developed a close working relationship over the last six years with key individuals at The University of Texas MD Anderson Cancer Center and its suppliers. Mr. Nielsen has a broad management background in senior management, leading turnarounds of several large companies. He also has experience in finance, product development, cost and investment analysis, manufacturing and planning. He has also worked with several other biotech companies developing and executing on strategies for growth and previously served as a director of Synthecon, Inc., a manufacturer of 3D bioreactors. Prior to joining Bio-Path, Mr. Nielsen served as Chief Financial Officer of Omni Energy Services Corp., a NASDAQ traded energy services company. Mr. Nielsen was a Lieutenant in the U.S. Naval Nuclear Power program where he was Director of the Physics Department and was employed at Ford Motor Company in product development. He holds engineering and M.B.A. finance degrees from the University of California-Berkeley.
But Mr. Nielsen's biotech experience is so light that the second line of his biography highlights his friendship with folks at The University of Texas MD Anderson Cancer Center.
While the bio states he led "turnarounds of several large companies," it mentions Synthecon, a company that seems to be a Houston Technology Center incubator product with little public presence since 2010. And it mentions an oil services company, Omni Energy Services Corp., where he became CFO in September 1999.
But the oilfield service company priced at $11 per share in its initial public offering in 1997 soon fell into financial disarray.
Mr. Nielsen's presence there could hardly be related to any "turnaround." According to this release on a lawsuit, his predecessor claims to have been hired as part of a turn-around team because "its stock price was depressed and the company had narrowly avoided delisting."
BioPath co-founder Douglas P. Morris also lacks prior biotech experience. The company director left his BioPath executive position in 2014.
Douglas P. Morris. Mr. Morris is a co-founder of Bio-Path and has served as a director of Bio-Path since 2007 and served as an officer from 2007 to June 2014. Mr. Morris currently serves as a co-founder, Managing Member, and Secretary of nCAP Holdings, LLC (nCAP), a privately held technology based company. Between 1993 and 2010, Mr. Morris was an officer and director of Celtic Investment, Inc., a financial services company. Since 1990, Mr. Morris owns and operates Hyacinth Resources, LLC (“Hyacinth”), a business-consulting firm and is also a Managing Member of Sycamore Ventures, LLC, a privately held consulting firm. Mr. Morris has a B.A. from Brigham Young University, and attended the University of Southern California Masters program in public administration.
Chief operating officer Ulrich W. Mueller (page 51) and director Dr. Amy P. Sing (page 52) both have some biotech experience. But out of six BioPath leaders, four have no significant biotech experience.
And, considering how little the 11-person company has advanced in nearly a decade, executives are generously rewarded. The two top executives haul in around $1 million yearly.
(Source: Company SEC filing)
Now, let's look at an investor that was, in our opinion, unfortunately attracted to BioPath.
*3. Unfortunate Support: Rodman & Renshaw
One reason for investors to be cautious is the April 18, 2016 $5 buy rating from Rodman & Renshaw. The note apparently helped push up the stock but a price increase is temporary ... and could suddenly reverse course.more...
Why The Virtual Reality Biz Likely Won't Become Himax Technologies' (HIMX)Reality
As virtual reality fans geek out over the latest goggles hitting the market, Himax Technologies (NASDAQ:HIMX) stock is shooting over the moon.
Himax shares have rocketed as much as 45 percent in the last couple of months. This rally came in lockstep with mass hysteria over the late-March shipping date for the "Oculus Rift" virtual reality goggles and the preorder date for "Microsoft HoloLens" goggles.
Taiwan-based Himax is a chip company focused on the driver IC used in TV and cell phone panels. The hype is tied to its second-tier product, a display piece used in virtual reality and augmented reality (VR and AR) headwear.
Yet when investors understand how Google Glass hype failed Himax previously - and how many other issues are chewing at the company - this stock could quickly get booted back to reality.
Investors may find other viewpoints here. Meanwhile, TheStreetSweeper presents the top eight reasons Himax shares are so risky:
*1. Rift: Weak, Largely Unpromising Sales Impact
The opportunity presented by Oculus Rift is weak and of little financial significance to Himax.
The Himax product used by Rift is the timing controller. Other Himax components could conceivably be used but the most prevalent piece by far is the timing controller, a chip that sells for about $1 apiece.
Some analysts estimate that 12.2 million virtual reality headsets may be shipped in 2016, according to Fortune.
Let's assume the unlikely scenario that Oculus Rift sold all of those headsets and Himax provided the timing controller for each one. The best gross revenue would be ~$12 million or a mere 1.75 percent of 2015 sales. Considering the current 3.64 percent profit margin, then, Rift would be worth less than half a million in net income.
And some analysts say that scenario is highly optimistic...
In fact, primarily thanks to issues explored in "Product Reviews" below, some analysts expect only around 3.6 million Rift sales in 2016.
Again applying the company's low profit margin, that would make the Himax opportunity unworthy of a mention at somewhere around $131,000 - yes, $131k - for the entire year.
So the case for a reality check goes deeper yet as we consider ...
*2. HoloLens: Too Expensive
The company's opportunity with HoloLens is also limited and very speculative.
Himax provides two LCOS display engines at $25 apiece and an array lens at about $100 apiece for HoloLens. However, Microsoft is uncertain about the mass market and few applications exist for the headset. So Microsoft is selling only a prohibatively expensive edition for developers... Indeed, the headsets sell for a whopping $3,000 apiece.
Too rich for most folks. And that price tag is reminiscent of Himax's snake-bitten Glass experience.
*3. Lesson Learned: Google Glass Gone
Himax remembers all too well the good and bad of Google Glass. The good news for Himax was that it supplied LCOS microdisplays for Google Glass. The bad news is that Google Glass has shattered.
In one click of the Google Glass website, investors can quickly grasp that the "smart" eyewear, as we knew it, is gone:
That's right. Despite Glass appearances on actors on the red carpet, on models in Vogue fashion spread and in the imaginations of fans who thought the devices would inexorably change their lives forever - everything fell away in one horrid swoop.
Glass faced massive criticism and legislative efforts aimed at safety and privacy concerns. But the final blow came in the form of a viral video of a middle-aged, not-all-that-fit-looking tech blogger wearing Glass ... as he took a shower.
Gasp! Glass is for geezers??more...
Odyssey Marine Exploration (OMEX): Seven Reasons This Stock Is A Shipwreck
Odyssey Marine Exploration’s (NASDAQ:OMEX) dumping its shipwreck business is like rearranging the deck chairs on the Titanic.
And - like members of the orchestra valiantly playing as the ocean water laps at the hems of their trousers - Odyssey is playing sweet tunes designed to convince investors that the inevitable won’t happen.
Odyssey is a Tampa, Florida company that has changed course from shipwreck recovery to undersea mineral exploration. In light of a messy controversy over the HMS Victory shipwreck, a former UK official calling the company a "scam," and a consistent record of losses other than one small net income blip in 2004, the company finally determined that its shipwreck recovery business was a wreck. So now the company hopes its unproven mineral idea will someday tip the ship upright.
TheStreetSweeper is not buying it. Investors may find other viewpoints here, as we look at seven reasons investors should expect more troubles before Odyssey can ever get to work on a single seabed mineral deposit.
*1. Cash Poor
The company is running out of cash fast. Cash and equivalents had dwindled down to $2.2 million at year's end. And Odyssey burns through more than $17 million per year.
That means Odyssey burns through about $4.3 million in cash each quarter.
At the same time, Odyssey's working capital deficit has hit $21.1 million. And, while revenue did increase to $5.3 million in 2015, net losses hit $18.2 million and a "going concern" issue still dogs the company. The snapshot below indicates the ongoing financial disappointments.
(Source: Company SEC filing)
*2. Looming Dilution
With cash burning, financial burdens mounting and just fresh from a Nasdaq delisting threat, the company recently had to ink a quick, draconian deal to borrow $3 million from Epsilon Financial at 10 percent interest.
Odyssey received $1.5 million on March 31 and will receive the remainder on April 30.
While the deal addressed cash burn for one quarter, it actually poses a noteable risk to existing stockholders.
That's because it gives Epsilon the right to convert every penny outstanding into Odyssey stock at $5 per share.
Here is the relevant part of the agreement:
"At any time and from time to after Epsilon has advanced the full $3.0 million to OME, Epsilon has the right to convert all amounts outstanding under the Note into shares of Odyssey common stock upon 75 days’ notice to OME or upon a merger, consolidation, third party tender offer, or similar transaction relating to Odyssey at the conversion price of $5.00 per share..."
A default by Odyssey would halve the conversion price to $2.50. So, if Epsilon converted the full amount into shares, the lender would receive about 600,000 shares. If Odyssey defaulted, the lender would get more than 1.2 million shares.
So as the company tries to stay afloat with its mineral dredging attempts, investors could very soon face diluted shares.
But even more ominous dilution potential looms ahead, as we explain in the "Extensive Stock Dilution" section below.
*3. Blame Game
Solid companies seldom blame others for their troubles. Not so with Odyssey.
When the company submitted its 2014 annual report, the US Securities and Exchange Commission responded with questions about its initial business of shipwreck excavation. The commission asked about recent UK Telegraph reports that the Maritime Heritage Foundation had only 65,000 pounds and that the HMS Victory site where Odyssey had planned to excavate is believed not to have a treasure.more...
Resonant Inc.: Big Troubles Could Send This Bad Boy To Penny Stock Land
Merely 11 months ago, we marched hyperactive Resonant Inc. (NASDAQ CM: RESN) right to the time-out chair for bad behavior. Since then, Resonant has been tottering along without making one penny in revenue, just digging a hole deep enough to hold $30 million in debt... and it's still digging.
Goleta, California-based Resonant, developer of radio frequency filters for mobile devices, held its initial public offering in May 2014 at $6 per share. That IPO generated $16 million or just enough to survive a couple of years. But the stock has zigzagged like a youngster hyped up on sugar, even as the company has failed to commercially launch its filters.
Today, Resonant is in big trouble... probably the worst ever.
Investors may find other viewpoints here. Meanwhile, we’ll hop back into Resonant’s playground to check out the five latest issues spatting the company's fingers.
*1. No Cash: How To Make Payroll?
With no way to generate revenue, Resonant's operating losses rose about $4 million in 2015 to hit almost $10 million.
Now Resonant is hurting for money. In December 2015, its cash and equivalents dropped to $2.5 million:
(Source: Company SEC filing)
But that was one quarter ago. And the company burns cash at a rate of $2.3 million per quarter.
So Resonant may have already run out of cash.
*2. Surprise! Going Concern Issues Tucked Into Holiday Filing
It was 6:32 p.m. on Good Friday eve. The markets were closed and most traders were consumed with thoughts of Easter egg hunts or religious services or simply enjoying a long weekend break from the stock market.
That’s when Resonant managers chose to file a stunning disclosure.
And Good Friday had dawned before the US Securities and Exchange Commission could file the company’s annual report containing that "going concern" disclosure tucked away on page 38. The disclosure included a revealing note from auditors to directors and stockholders. Auditors wrote:
"... the Company has earned no revenue since inception through December 31, 2015 and has incurred significant losses from operations since inception. In addition, the Company’s operations have been funded with initial capital contributions, proceeds from the sale of equity securities and debt. The Company's principal sources of liquidity as of December 31, 2015 consist of existing cash balances and investments of $5.5 million. These events and conditions raise substantial doubt about the Company’s ability to continue as a going concern."
Clearly now, auditors doubt the company will survive.
*3. Now What? Potential Stock Dilution Looms
In addition to the going concern notice, the company filing warned:
“We have determined that additional capital from the sale of equity securities or the incurrence of indebtedness and, ultimately, the achievement of significant operating revenues will be required for us to continue operations through the second quarter of 2016 and beyond.”
As any self-respecting 10-year-old might say, “Duh! They’ve gotta sell stock or get a loan. Because you can’t squeeze pennies out of an empty piggy bank.”
So, considering the rapid cash burn rate, only a white knight or a $9 million-plus stock offering could slap a Band-Aid on Resonant at this point and keep it breathing for one more year.more...
US Concrete: Ready To Crack Under Pressure
Investing in US Concrete is like investing in a pair of concrete shoes for your investment portfolio.
The stock, (NASDAQ CM: USCR), is set to go down, down, down, in our view. And US Concrete investors could soon find their portfolios swimming with the fishes.
US Concrete sells ready-mixed concrete principally to customers in its home state of Texas, plus northern California and New York/New Jersey.
The company hasn't responded to our request for comment but investors may find other viewpoints here.
Meanwhile, let's look at an executive summary followed by details on why stock in this concrete company is ready to crack under massive pressure.
*Insider selling of company stock.
*Quarterly revenue slip.
*Sensitive to economic stagnation, a housing bubble or just an economic hiccup.
*Very low cash, suggesting the need for a raise such as a stock offering.
*Excessive executive compensation equal to nearly one-quarter of the company's entire net income.
*Numbers Would Scare Even Crazy Joe
TheStreetSweeper has seen more than our share of crazy ratios over the years. But one key Concrete ratio absolutely floored us.
US Concrete's trailing Price-to-Earnings ratio hit an incredible 544! That means people are paying 22 times more for US Concrete than the average 24 P/E seen within the industry overall.
Why? A P/E of 544 is just as outlandish as the nearly $1 billion market valuation placed on a company that is not curing cancer or selling the fountain of youth ... rather a company that sells cement. And it sells cement primarily in just three regions of the country.
That bizarre ratio hasn't gone unnoticed by the folks that investors look to for guidance ... insiders.
*Insiders Yell, "Sell!" At Well Below Today's Price
US Concrete insiders have taken shares on a brisk walk to the auction block time and again over the last three months. In fact, insiders apparently had enough questions about the future of the stock that they didn't bother making even one open market purchase from December through today.more...
Why You Could Go Broke Buying Broke Out
When two UK twenty-something buddies - who sold "streetware" and "head ware," in 2014 and greeted customers with "Yo Peeps" - swing a stock deal with a Belize company owned by a guy in China, what can possibly go wrong?
First of all, that unlikely team has actually formed a publicly traded company called Broke Out, Inc. (OTC Pink: BRKO) and sold stock in the company. Now people are actually buying the highly risky over-the-counter "pink sheet" stock.
Unfortunate investors have no idea that this is a company that has gone $81,559 into the hole as it holds only $3,762 in cash.
Yet, levitated by a heavy promotional campaign over the last couple of days, Broke Out is now teetering on a market valuation of not $1 million ... Not $10 million ... But $100 million.
Incredibly, Broke Out soared on news that it has acquired an app called "Secret Menu for Starbucks™."
The company is trying to tie itself to the popular international coffee store. But there's every reason not to buy into this stock.
Broke Out has not responded to TheStreetSweeper's request for comment and there's really nothing beyond blatant promotions offering the bull case to this company which just may be the biggest financial disaster we've ever covered.
But let's look at the top reasons Broke Out will likely leave investors broke:
*1. Background; Switch-eroo
Broke Out started as a way for a young UK man to express himself and perhaps make some extra bucks.
Here's Broke Out founder Jason Draper modeling one of his line of eight pieces of clothing, as well as a snippet from his thoughts penned on the Broke Out website:
But Broke Out was, well, broke.
So, on January 27 this year, Broke Out issued 4.6 million shares to a Belize company controlled by Chinese resident Chan Set Kuan; Jason Draper also sold 15 million shares privately to Mr. Kuan. Mr. Draper and the other officer backed away, leaving Chan Set Kuan as the sole executive and director.
The stock offer wrapped up assets of Megapps Ventures, a company that had existed three months and spent the entire time not building apps but buying them.
Overnight, the struggling fashion company became a struggling app company operating out of a home office in Berlin, Germany.
Should something go wrong - and it will - this China-Germany combination will make it very difficult for investors to find recourse, as filings spell out on page 11.
*2. Absurd Acquisition
So how did a little two-man operation selling eight items of street wear become a two-man app company wrongly valued in the multi-millions?more...
KEYW Holding Corp.: Five Key Challenges Pose Significant Downside Risk
An embarrassing acquisition and declining gross margins are among the issues poised to kill the stock price of KEYW Holding Corp. (KEYW).
Indeed, while a rally is temporarily holding up the share price for the holding company, massive challenges have set up prime conditions for a dive. These hazards are tied to the company's failed attempt to jump from a declining government contract business into the cyber security business and back out again.
The Hanover, Maryland-based company hasn't responded to TheStreetSweeper's request for comment but investors may find various viewpoints here. Meanwhile, we present the top five reasons KEYW faces big troubles.
*1. KEYW Must Dump Embarrassing Loser
The company had plodded along as a boring government contractor until it captured investors' attention by forming the Hexis Cyber Solutions product line and beginning to remake itself into a cyber security company.
Investors bought into KEYW's expectations for Hexis. They were under the impression that the new business was brimming with hope, based on the company's revenue projections:
(Source: Company SEC filing)
But Hexis has fallen far short of expectations. The segment generated $7 million revenue less than anticipated in 2014. And the expected $40 million contribution to revenue in 2015 turned out to be under $14 million:
(Sources: Company SEC filings and earnings call)
So KEYW wants to put this major misstep behind it by trying to sell all or part of Hexis. In the last earnings call, CEO Bill Weber said:
"KEYW will not continue to invest in the unconstrained way it has in the past. As a public company, we have the utmost obligation to shareholder value. And as such, we initiated a process a few months ago for a strategic alternatives for the Hexis business. Those alternatives include an investment or sale of our Commercial Cyber Solutions business in one or more transactions to buyers."
But dumping Hexis means that KEYW could get dumped, too.
*2. Bye-Bye Hexis; Bye-Bye Investor
We've asked KEYW if managers are worried that selling all or part of the glamorous cyber security segment could give investors a reason to sell the stock. We haven't heard back. But let's consider why we believe looming stock selling is a clear and present risk to current investors.
The situation revolves around KEYW's activities as a risky roll-up - a company that chases after revenue by conducting acquisition after acquisition. All too often, these deals produce far less revenue than hyped and consume far more money and management attention than expected. We've frequently warned investors about roll-ups such as Revolution Lighting (RVLT, $4.08 on publication day, $0.77 now) and InterCloud Systems (ICLD, $3.15 then, $0.54 now).
In the case of KEYW, the company wanted the Hexis acquisition to propel the company into a sector showing some life - cyber security.
So the company's entry into the cyber security field in 2012 must have seemed perfect for a fund called PureFunds ISE Cyber Security ETF (HACK).
PureFunds bought in. KEYW became a tiny 1.24 percent of PureFunds' portfolio (here). For perspective, here's a snapshot of PureFunds' top holdings in cyber security leaders.
Indeed, the KEYW holding is small - the fund's third smallest holding. Yet the 1.8 million shares of KEYW means the fund holds a meaningful 4.5 percent of outstanding shares.
But PureFund now has an issue. The former glamour fund is now a bummer carrying homely, if not downright ugly, returns.
With both the impending divestiture of Hexis and PureFunds' quarterly portfolio rebalancing right around the corner, KEYW is likely in trouble. PureFunds may well sell all or at least a massive amount of KEYW stock once KEYW boots its cyber security business.
That poses a screaming threat of stock dilution for today's investors.
*3. Undependable Government Contract Businessmore...
Broke Out II: Unbelievable Hype, Crushing Drop Ahead
Broke Out (OTC-Pink: BRKO) has been floating on hot air from a well-oiled hype machine over the last few days but the inevitable is just ahead: This stock is ready to deflate.
TheStreetSweeper sent a detailed email to securities regulators late last week about the actions surrounding Broke Out. The company appears to be in the "pump" stage of what in our opinion will ultimately become a particularly egregious pump-and-dump tactic. We believe this tactic is poised to leave many Broke Out investors flat broke.
We've seen many pump-and-dump tactics over the years but seldom have we seen anything quite this appalling.
The apparel retailer with just eight different articles of clothing last year made a desperate pivot to offering apps. But loses have continued to rocket, leaving the company with only $3,762 in cash at the end of the year.
Yet nearly 100 times that amount - $315,000 to be precise - has gone into a four-day Broke Out promotional campaign. And who is the sugar daddy who paid promoters big bucks in recent days to hype Broke Out?
The group shelling out over $300,000 to promote a company with about $3,700 in cash is a two-man fund called Bullseye Asset Management. We can assure you we'll be keeping our eye on this incredibly generous Denver hedge fund.
Primarily thanks to those promotions, the stock exploded by more than 146 percent, handing Broke Out an unbelievable market valuation of $105 million.
The company has not responded to TheStreetSweeper's request for comment. Meanwhile, let's look more closely at the ridiculous hype and other issues investors must consider with this stock:
*1. Most Promoted Stock
Broke Out now holds the dubious distinction of becoming the most heavily promoted stock in March, according to Hotstocked. That's right.
Subscribers were treated to 25 emails by a group of newsletters that form Elite Penny Stock. Elite is the same outfit that promoted CLOW ($0.07), EURI ($0.09) and AREN ($0.01), all of which started at pennies, briefly exploded, then collapsed when the promotions stopped.
The Broke Out promotions over the last few days included:
"BRKO's moment to shine is right now and if you don't buy shares of it today you may look back in regret once its shares are trading at around 10 dollars," crooned SmartStockChoices in a widely distributed March 9 email.
The fine print at the bottom of the email explains, "We do not publish research or due diligence and only publish favorable promotional information about the Profiled Companies because we are paid to do so."
And ... this:
"BRKO is the stock you want to buy now!" shouted BestAmericanStocks.
Noting its $70,000 payment from Bullseye, the March 7 email warned investors: "The Newsletter is a one-sided advertisement that only provides positive information... we do buy and sell during campaigns. We even sell shares of Profiled issuers during the dissimenation of the Newsletter while the Newsletter recommends that you buy the same shares we intend to sell.
"Individuals should assume that all information contained in the Newsletter is not trustworthy, accurate or complete ..."
And this from Finest Penny Stocks:
"Here is why this company could go up from $3 to $20."
The email is signed by Keith Richie, Editor. But the fine print says he's a fake!
"Any first, middle, and/or last name referring to our "editor," ... or any other title or name is purely fictitious."
Kind of rips away that warm and fuzzy feeling, doesn't it?
*2. Ranking: Skull And Crossbonesmore...
Second Sight Medical Products: Eye-Opening Risks Ahead
Two eye-opening announcements over the last couple of days jumped shares of Second Sight Medical Products (EYES) above $6 per share.
The first boost came after the company announced its prosthetic eye will be featured in an episode of HBO’s “Vice” titled “Beating Blindness.”
Though its implantable visual prosthetic isn’t specifically mentioned in the show airing Feb. 26, EYES product appears to be visible in a preview.
EYES will of course happily accept all promotional effects.
But those 15 minutes of fame won’t change the very real issues that will drop this stock.
Here are TheStreetSweeper’s top four reasons investors should keep eyes wide open on EYES:
*Dual Promotions Signal Potentially Dilutive Stock Offering
As the promotional efforts mentioned above attest, EYES has stayed unusually busy lately churning out press releases.
They’ve produced eight press releases since Nov. 24, with four of those released this month. The snapshot below highlights the company's latest promos:
(Source: Company website)
While the "Vice" episode may be serendipitous, the vigorous promotions are not. Instead, we believe there's a method to their madness. The company needs to push out a potentially dilutive stock offering. Read on to understand all the signals pointing that direction.
*Cash Down, Losses Upmore...
Celator Pharmaceuticals: Eight Key Risks Threaten To Chop This Stock
Celator Pharmaceuticals (NASDAQ: CPXX) has finished cherry-picking and left the ladder against the tree. Now stock promoters have climbed up and begun tossing investors the pits.
The small New Jersey company with negative earnings and no revenue has been focusing on a drug targeting a rare cancer called acute myeloid leukemia.
Investors may find other viewpoints here. Meanwhile, here are the top eight reasons TheStreetSweeper expects Celator stock will quickly wither and die.
*1. Failed Phase II Trial Endpoint
Celator actually failed to meet a key endpoint in its phase II trial of VYXEOS (formerly CPX-351). That’s right.
In the May 2014 edition of Blood Journal, researchers wrote that they studied the response rate (complete remission + incomplete remission), plus survival.
The drug overall produced response rates of 66.7% versus 51.2%, as shown here.
So there wasn’t a lot of difference between what happened to patients who took the Celator drug compared to those in the control group. But the survival measurement is key. Researchers wrote …
Differences in survival “were not statistically significant.”
Data analysis of the entire group showed the dreaded crossed lines:
(Source: Study published in Blood Journal)
In the charts above, the red line indicates the Celator drug. The blue line indicates the standard of care, chemo. When those lines cross, results of the two therapies are no different.
As an OncLive author wrote: "The study did not meet its primary endpoint of a statistically significant OS improvement at 1-year posttreatment. However, there was a statistically significant OS benefit with CPX-351 among the protocol-defined EPI poor-risk subset (HR = 0.55; P = .02). A higher response rate (39.3% vs 27.6%), EFS improvement (HR = 0.63; P = .08), and lower 60-day mortality rate (16.1% vs 24.1%) were also observed with CPX-351 in this poor-risk subgroup."
Then something unusual happened. Researchers examined data for a small group within the original group of 126 patients. This cherry-picking produced a special subgroup of patients with secondary acute myeloid leukemia. That subgroup produced better looking results.
Those lines did not cross. Of course, the Food and Drug Administration would have likely preferred a wider distance between the lines, which would indicate the drug was likely working. But at least the lines did not cross:
Indeed, researchers found response rates compared more favorably: 57.6% versus 31.6%. They also found slower cytopenia recovery and more infections but thankfully infection-related deaths didn’t increase.
Even in light of the more favorable data in the smaller group, the response rate isn't the measurement that matters most. Oncology doctors consider overall survival the ultimate measurement of cancer drugs. But, as we've said, researchers found Celator failed the overall survival measurement in phase II.
So the company had what it wanted in the smaller sampling.
What’s so bad about that? Well, read on …
*2. What’s Wrong With Cherry-Picking?
This cherry-picking is contentious enough that both the FDA and EU have weighed in and set up guidelines. The FDA says subgroup “analyses should be interpreted cautiously.”
Authors reported the fascinating observation that:
“…no drug has so far been approved or not-approved either in the US or in the EU on the basis of subgroup analysis.”more...
Globant S.A.: Beautiful Words Won't Halt The Looming, Ugly Decline
Globant S.A. is living proof of the old adage, "Beauty is only skin deep." Just scratch the surface of this Luxembourg company and you'll find enough Quasimodo-esque characteristics to send this stock running into an ugly, rapid decline.
Indeed, Globant's SEC filings are unique as it conjures up beautiful - and vague - visions of the business: "Globant (NYSE: GLOB)is a digitally native technology services company. We dream and build digital journeys that matter to millions of users. We are the place where engineering, design, and innovation meet scale."
Plow through all that dreamy stuff and investors find a company with a bank of computer programmers and design support people primarily working out of the main office in Argentina.
Investors may find other viewpoints here. Meanwhile, diligent investors can see growing risks are tarnishing Globant's glowing digital dream, including:
*1. Limited Recurring Revenue
Though it has attracted customers such as Coca-Cola and LAN Airlines, Globant must operate within an atmosphere of transient customers and short-term contracts.
What happens is that Globant wins these one-time projects but once they're done, they're done. The customer says "Thanks," pays up and takes the project in-house to save on costs. Globant clearly concedes that risk to revenue on page 21 as it describes "a decision by that client to move work in-house."
Alternatively, Globant says the customer may decide to move work "to one or several of our competitors."
Company filings describe the risky short-term nature of most contracts:
"...most of our client contracts are limited to short-term, discrete projects without any commitment to a specific volume of business or future work, and the volume of work performed for a specific client is likely to vary from year to year, especially since we are generally not our clients’ exclusive technology services provider. A major client in one year may not provide the same level of revenues for us in any subsequent year."
Globant has been handling some Google projects, including the recent hardware related project trial called Project Ara. This trial has no time table attached and provides a pretty good example of how companies use Globant on a project basis.
In a recent note to BWS Financial investors, Hamed Khorsand beautifully explained Google's project-based use of Globant ... and the associated risk:
"The project based approach leads us to believe that the Street is not valuing the business risk concisely and leaves investors vulnerable to the downside especially when the competitive landscape is changing.
"It also does not mean GLOB would be able to sustain 20 percent or 30 percent growth in an industry that grows at less than 10 percent a year," wrote Mr. Khorsand.
So Globant's services, in our opinion, cannot generate the kind of recurring revenue that is so crucial to a viable future.
*2. Reinventing The Wheel
So the short-term nature of the technology services business is forcing Globant to find new customer after new customer.
Unfortunately, this constant grinding away each day to reinvent the wheel is beginning to show on the company.
Globant says so itself.more...
TransEnterix: Nine Top Reasons TRXC Is An Operational Disaster
Today's TransEnterix Inc. (NYSE: TRXC) came into being through the most reckless of actions - by casually plunking down $94 million for a tiny company offering virtually no sales, no prospects, nothing really beyond multi-millions in losses.
"As previously discussed, the projections for SafeStitch show that a profit is never expected to be attained."
The company hasn't responded to TheStreetSweeper's request for comment but investors may find other viewpoints here.
Meanwhile, here are TheStreetSweeper's top eight reasons investors might want to consider running away, screaming from this operational disaster:
*1. Worst $94 Million Ever Spent
We're still examining TransEnterix' unbelievable payment of 12,350,000 shares at $7.60 per share for a company so far removed from the surgical robotic field.
SafeStitch focused on small, disposable devices targeting hernias, obesity and gastroesophageal issues. And, in the days before the September 2013 reverse merger, it became clear that SafeStitch's financial health was no more attractive than the surgical stapler that generated miserly sales:
(Source: Company SEC filings)
SafeStitch recorded $35,000 in sales in 2012 and zero the year before. Total net loss had risen to $29.5 million. Not surprisingly, the financial statement included the warning below.
"It is uncertain as to the length of time the Company can sustain continued operations without the availability of additional funds. This uncertainty raises substantial doubt about the Company’s ability to continue as a going concern. "
Auditors were dismissed soon afterward. TransEnterix continues to struggle with its own going concern issue.
And as if the merger price didn't seem crazy enough, the company placed $10,000 under intangible assets and $93.8 million under goodwill - thereby keeping almost every penny of the SafeStitch acquisition out of the income statement.
The US Securities and Exchange Commission apparently thought this was, well, odd. Absurd enough to be included among 41 TransEnterix questions posed by the Commission.
The company responded that it conducted the reverse merger primarily because it was desperate to raise capital. Another frantic action came months later, in March 2014, when the company conducted a reverse stock split. That split was necessary to jump the stock price enough to meet NASDAQ listing requirements.
So, how carefully has TransEnterix handled operations since then? Let's see ...
* 2. Absurd Numbers
TransEnterix' operational functioning continues to be abysmal. The company has not made a penny since inception and analysts are expecting a 12 cent per share loss in the coming quarter.
Even though analysts should be getting used to the ongoing miserable negative earnings, TransEnterix last quarter delivered a negative 34 percent surprise. That's right. Instead of an earnings loss of just 4 to 12 cents, the company suffered an earnings loss of 16 cents per share. As the chart indicates, investors can expect more pain in the future:
Simulations Plus: Top 11 Reasons SLP Stock Will Deflate
The stock price of Simulations Plus (NASDAQ: SLP) looks ready to slip, slip, slip away.
Shares in this Lancaster, California drug software and contract research group have recently risen like a gigantic, luminous balloon. But this dirigible has been floating on old hot air,(more hot air today) interesting accounting methods, dropping cash flow, looming payments and insider selling – and is just about to deflate.
TheStreetSweeper presents the top 11 reasons we expect SLP stock will soon slip its mooring and head down, down, down.
*1. Goodwill Hunting
First, let’s focus on the accounting surrounding the $7 million acquisition of Cognigen in September 2014.
SLP's initial payment of $5.2 million consisted of $2.08 million in cash and over 491,000 shares ultimately valued at $3.277 million. (SLP will need to pay the remaining $720,000 cash and 170,014 issued shares in July.)
This transaction would normally prompt a pretty big hit in the income statement.
But the company did something that’s perfectly legal yet quite surprising.
The company allocated almost $4.8 million of the acquisition cost to "goodwill." So goodwill – the premium SLP paid over Cognigen’s book value – accounted for over 90 percent of the initial payment. By allocating it this way, SLP kept the vast majority of the cost off the income statement.
And goodwill appears as an asset:
(Source: Company SEC filings)
If we looked at goodwill in relation to assets, we find SLP recorded $8.4 million in Cognigen assets. Goodwill came in at 57 percent of that … So the ratio of goodwill to assets also comes in much higher than with many firms.
TheStreetSweeper asked SLP's CFO John Kneisel to do a little goodwill hunting with us.
Our question: Why allocate so much to goodwill?more...
The VirnetX Holding (VHC) Rocket Ship: Failure To Launch
Shares of VirnetX Holding (VHC) have ridden an unfortunate rocket to the moon based on a court decision that Apple infringed on VirnetX’s patents. But we believe the share price will crater as soon as the market understands the massive risks:
1. The Trend: No Settling
Patent trolling firms used to nab larger companies by the tail. But now these companies are beginning to fight - and win - these lawsuits filed by patent trolls. Case in point is Better Mouse Company's patent suit against SteelSeries.
Better Mouse apparently attained the title of “patent troll” because the company began buying up patents and launching patent lawsuits shortly after it was formed, according to Forbes. Before long, Better Mouse's chewing paid off as companies eager to push aside the pesky little troll coughed up $1.2 million just to settle matters.
But jurors jerked away Better Mouse's cheese on Jan. 14. They rejected the company's patent infringement claims against SteelSeries.
So will Apple really meekly hand VirnetX $625 million? That's unimaginable.
In fact ...
2. Many Years Before VirnetX Pockets A Dime – If Ever
Apple immediately filed for a mistrial after last week’s verdict of infringement on four VirnetX patents in products such as FaceTime and VPN services. And VirnetX’s attorney said he thinks it could take several more years to resolve the case that began six years ago, not near VirnetX's Nevada headquarters but in Tyler, Texas, "the patent litigation capital of America."
Meanwhile, VirnetX knows all too well that after spending countless hours and dollars litigating, cases sometimes go the wrong way. The company filed a $258 million patent lawsuit against Cisco in 2010 with what may have seemed to VirnetX astonishing results. In a stinging 2013 verdict, jurors determined Cisco had not infringed on VirnetX patents. VirnetX investors raced to the exits and shares plunged 28 percent.
3. Microsoft Outcome Disappointing
Even when a lawsuit ends up being settled to VirnetX's favor, the results aren't as beneficial as we would hope. VirnetX won a March 2010 $200 million settlement against Microsoft. Yet, the lead counsel whacked away $20 million plus expenses; taxes took $34 million; and partner Science Application International Corp. $59.24 million, with more obligated.
Ultimately, the Microsoft windfall turned out to be a gentle breeze resulting in VirnetX receiving only about $63 million... Though the settlement did manage to push the negative earnings into a positive 91 cents, the company ended up with just 31 percent of the settlement.
Amedica Corporation: More Painful Drama To Come
Amedica Corporation’s (AMDA) reverse stock split is the latest and perhaps the most desperate measure taken thus far. But more painful drama will follow.
On the verge of getting delisted from the NASDAQ, so it pulled as desperate 1-for-15 reverse stock split on Jan. 25 with the stock trading at just 11 cents per share.
The split technically propped up the stock into compliance for now, much like another desperate stock TheStreetSweeper just warned investors about … Authentidate Holding Corp. (ADAT,$5.04/share on publication date, $2.94 now). But Amedica’s desperation is even more palatable with its higher cash burn, nearly as severe accumulated losses and more frequent recent promotions.
Just last November, professional stock promoters were paid to conduct a two-day promotional blitz of Amedica stock. Paid stock promotions have always provided one of the surest, quickest tipoffs that a company is desperate … and likely doomed to take a trip to penny stock land.
Real companies with real products and real promise simply don’t need the hype….unlike Amedica.
Investors may find other viewpoints here. Meanwhile, let's proceed with the jaw-dropping risks aching to pummel this stock.
*Bought And Paid For Hype
In Amedica’s case, a third party paid cash through a wire transfer to hype the company for a two-day campaign.
The more desperate the company, the greater the hype and tens of thousands in hype-money is just the opening act. The greater danger to investors is that stock promoters can buy huge quantities of potentially worthless stock and pitch it to their subscribers. Those subscribers’ purchases rocket the stock price, triggering the promoters to dump the stock … and the stock price dives.
Investors can see details of the Amedica hype-fest below:
*Amedica Promoters’ Record
Still tempted to follow promoters’ advice to buy Amedica?
Let’s check their track records first.
Penny Stock Locks, responsible for the majority of the Amedica campaign, cites two recent “winners,” Golden Star Enterprises (GSPT, no revenue, $207 cash, $-119,500 operating cash flow), which was heavily promoted this weekend and Monday by another newsletter writer, and Excalibur Resources Ltd. (EXCFF, no revenue, $3,620 cash, $-142,700 operating cash flow).
The promoter discloses: “PennyStockLocks.com and its officers, partners, affiliates, employees, etc. are compensated for covering and profiling these companies in cash and/or stock and as such there will be a conflict of interest and our profiles and other dealings are not arms length transactions. The party that pays us usually has a position in the stock they will sell at anytime without notice. Their selling and our selling of shares could have a negative impact on the price of the stock, resulting in losses to you.”
Even humor can’t deflect the risk: “We will not be held liable for any investment decisions you make when that is the case. (Hey Folks, these are high risk stocks).”
If the financials and disclosures aren’t eye-popping enough, check out the stock charts of the promoter’s self-proclaimed winners:more...
Turtle Beach: Apparent Default, More Undesirable Ingredients For This Turtle Soup
Turtle Beach Corporation (HEAR), the moldy headset company TheStreetSweeper wrote about less than four months ago, continues to turn into turtle soup. Our update includes the latest unfortunate ingredient - an apparent loan default - atop a heaping serving of undesirables:
*Debt hole deepens.
The company burned through $11 million in just the first nine months of 2015. Cash now rests at about $7.2 million.
All totaled, debt is $84.2 million.
Available cash has dropped by over 50%.
*Loan default threat.
*Turtle Beach appears to be in default of its Bank of America loan, due to horrid EBITDA. Lenders renegotiated the loan terms late last year, as the 8K shows here.
*Company must raise at least $10 million by Jan. 29, 2016.
*Company faces strict EBITDA targets, requirements which indicate an additional business decline …
So, as the chart above shows, as of Dec. 31, 2015, lenders required Turtle Beach to reach $8 million EBITDA.
But EBITDA was in the red … a miserable $-3.3million.more...
Authentidate Holding: Delisting, Massive Challenges Wreck This Runaway Rollercoaster
The Authentidate Holding Corp. (NASDAQ: ADAT) rollercoaster has hurled investors along a teeth-jarring ride made all the more excruciating now that trading is expected to be shifted from the NASDAQ to the lowly OTCQB ...tomorrow!
The company announced today, Jan. 28, that ADAT has lost its NASDAQ listing.
Indeed, this crucial event has been in the works for years and was forewarned by numerous issues, including:
*Primary customer lost.
*62% drop in revenue to $398,000.
*Losses totaling almost $10 million in 2015 alone.
*Two stock promotion blitzes.
*Two reverse stock splits.
*Just one US patent and one patent pending.
And the warnings simply got worse:
*Auditors' substantial doubt that ADAT will continue as a going concern.
*Cash position drops to a fraction of $1 million.
*An SEC cease-and-desist order against ADAT’s biggest shareholder, Lazarus Management, an investment company desperate enough to actually write about ADAT in a Seeking Alpha article.
Yet, even despite today's confirmation that ADAT has lost its NASDAQ listing, ADAT wants investors to sit tight in their coaster seats.
TheStreetSweeper has not gotten a response to a request for comment from the web-based software applications company but investors may find other viewpoints here.
Meanwhile, let’s look at the grimy undercarriage of this rollercoaster.
*Cease-and-Desist Order Involves ADAT And Four Other Stock Issuers
ADAT is seriously obligated to two pairs of brothers. The SEC sanctioned entity is linked to the first pair.
Lazarus Management owns a 29 percent stake in ADAT and its related entity holds a recently extended $500,000 ADAT note with a searing 20 percent interest rate attached. Lazarus is managed by the brother of company director Todd Borus, who owns ~192,000 shares of stock and cheap options.
The US Securities and Exchange Commission saw fit in September 2014 to fine Lazarus Management $60,000 and order it to cease and desist securities violations. A portion of the litigation document is below. The full document is here.
The order specifically names violations revolving around five issuers, with ADAT listed first.
In 2013, Lazarus Management blatantly promoted ADAT through a management interview published on Seeking Alpha.
*Stock Promotion Blitz
Six months before the SEC order, a promotional campaign focusing on ADAT launched. This desperate first effort by professional stock promoters barely moved the stock price above the $1 per share range.
But a promotional blitz launched Aug. 26, 2015 succeeded in one respect, sending the stock up a blistering 18 percent:
This promotion came exactly one day after Authentidate announced plans to merge with the small private testing lab Aeon Clinical Labs. The double-digit stock rise helped push shares …
To 34 cents per share.more...
LightPath Technologies: Heavy Promotions, Lame Fundamentals, R&D Budget Slash Add Up To Potential Dilution
LightPath Technologies (NASDAQCM: LPTH) promoters and an infinitesimal glimmer of income have nearly quadrupled the stock from its 52-week low of 82 cents per share.
Now, the maker and assembler of molded optics, light-focusing components and glass lenses is overbought and extremely risky.
TheStreetSweeper didn't get a response to our request for comment but investors may find other viewpoints here.
Meanwhile, let's throw some light on LightPath before this stock can burn investors.
*Heavily pushed by professional stock promoters
Stock promoters orchestrated a blitz promoting LightPath some 34 times, ultimately priming the stock most recently on June 2, 2015, June 3, 2015 and June 9, 2015. And in June 2013, another company pushed LightPath, along with CLSN (~$7.50 then, ~$1.40 now) and SONS (~$16 then, ~$5.90 now).
Here’s a snapshot of some of the latest promos:
LightPath message boards have become the stomping ground of penny stock promoters, as indicated below:more...
American Superconductor: Relentless Storms Break Up This Wind Turbine Company's Turn-Around Effort
The chief executive of American Superconductor Corp. (NASDAQ: AMSC) nailed it when he told a reporter that China wanted “to kill the company.”
In fact, shares collapsed under China’s pressure, plunging the market valuation by 87 percent virtually overnight in 2011. And despite misunderstood hype that has breathed a quiver of life back into AMSC in the past few weeks, the stock appears poised for another hammering.
In a 60 Minutes segment broadcast Sunday night, CEO Daniel McGahn said AMSC lost over $1 billion in valuation when China looted its wind turbine technology in a high-stakes game of industrial espionage.
Back in 2007, AMSC agreed to supply the computer brains for wind turbines made by small, China-based Sinovel. Two years later, AMSC announced a $100 million follow-on contract with Sinovel. In 2010, the year it hyped a partnership expansion, AMSC broke its string of losses and knocked down $16 million in net income, thanks to the Chinese company.
*Business Disappears Overnight
But in March 2011, those celebrated contracts fell apart. Sinovel, a 70 percent contributor to AMSC’s revenue, suddenly refused contracted deliveries of the company’s turbine controls.
Oddly, it seemed Sinovel turbines were spinning when they should have been shut down during testing. That’s when the company began investigating. It seemed an employee had secretly copied AMSC's intellectual property, including source code. Six months later, Superconductor filed suit claiming it had been left in a lurch and its IP stolen.
Lured by promise of a $1.7 million contract and other perks, a Superconductor insider agreed to steal the technology for Sinovel, according to a criminal indictment.
Incredibly, the FBI discovered stolen technology right under AMSC’s nose.
FBI agents found a Sinovel wind turbine - complete with AMSC’s heisted technology - just 40 miles away from company headquarters in Devens, Massachusetts.
The Massachusetts Water Resources Authority had purchased the turbine from Sinovel for $4.7 million - in federal stimulus money.
Undaunted, Sinovel punched back with a $190 million counterclaim in China over issues including failure to meet contract standards.
So the civil proceedings between AMSC and Sinovel rest in the court in Beijing, another complicating factor for the American company.
“It’s a very complicating factor, I think evidenced by the fact it’s been four years and we’ve haven’t seen much movement at all,” Brion Tanous, AMSC investor relations, said in a phone interview with TheStreetSweeper.
Of course, AMSC's four civil lawsuits remain unresolved - one initial trial date has been set for December - and the ultimate expenses remain unknown.
One thing is certain, though. In one fell swoop, AMSC lost its best customer … and control of its technology.
TheStreetSweeper believes there’s a nagging danger that other companies may be willing to take a turn at kicking AMSC in the chops, too …more...
SolarWindow Technologies: After 18 Years, Still No Product, No Revenue, No Rainbow Ahead
The Wizard of Oz could not have conjured up a company less likely to deliver a financial rainbow to investors than SolarWindow Technologies (OTC: WNDW).
The Columbia, Maryland company has three full-time employees, $29 million in losses, has never made a penny in sales, depends upon backing by a promoter formerly sanctioned by the Securities and Exchange Commission. The whole mess is overseen by a chief executive whose 2014 compensation package is bigger than the company's entire R&D budget.
And, as the wicked Witch of the West warned, this “little party’s just beginning.”
The company has not responded to a request for comment but investors may find other viewpoints here.
Meanwhile, let’s look at the reasons TheStreetSweeper believes this party will end badly, no matter how many times the company clicks its ruby slippers together.
*After 18 Years, Still No Product
The public vehicle has been in existence for two decades – since May 1998.
In those 18 years, the company has changed names three times, changed focus a couple of times but never commercialized a single product.
At inception, the company called “Octillion” rolled up two asset-free companies into subsidiaries. The first idea was to develop a spray window coating designed to convert sunlight into electricity. The second idea surrounded pursuit of technology to regenerate optic nerves.
But without a product, the company had no way to make money. So operations depended on selling stock and getting loans from its now-past president, Harmel S. Rayat. Investors will learn more about Mr. Rayat's background below.
*Dorothy: “My, People Come And Go So Quickly Here!” And So Do Names, Symbols And Ideas
The company latched onto the name SolarWindow in March 2015. Previously, it was known as Octillion (OTCBB: OCTL) from 1998 until 2008, when the name was changed to New Energy Technologies (OTCBB: NENE).
And its product ideas changed quicker than you can say, “Create a couple of subsidiaries and spin off the ‘nerve regeneration’ loser.”
The spun-off nerve regeneration business reports $0 revenue, $0 cash flow and a share price that plummeted from an awful 43 cents to an atrocious zero:
Meanwhile, the parent company relied on Mr. Rayat while it desperately tried to connect the dots between a report in 2007 and its idea:more...
Digging Into NovaGold Resources: Big Risks, Massive Costs Ahead
There may be “gold in them there hills” but investors better not count on NovaGold Resources (NYSE: NG) digging it out.
NovaGold owns 50% of two exploration properties, consisting of the Donlin Gold project in Alaska and Galore Creek in Canada.
Expected expenses are massive. The prospects are iffy. The risks are enormous. And the excavation route goes straight through investors’ wallets.
The company hasn’t responded to our request for comment but investors may find various viewpoints here.
Meanwhile, here are the chief reasons TheStreetSweeper believes this blinding stock rally – up 11 percent in three months - is merely a flash in the pan:
*Donlin Gold project:
No operations. No revenue. The project awaits government approval for over 100 permits. The open-pit mining operations aren’t expected to start up until 2020.
*Proven and potential gold reserves: While NovaGold reports reserves of 7.7 proven metric tons and probable reserves of 497, no precise data exists showing how much gold may be there or whether any is recoverable, and company expectations are not statements of fact, as stated here and here. Additionally, acid mine drainage, possibly thousands of pounds of mercury releases, cyanide effects and increased river barge traffic top the project’s environmental risks.
*Cost to design & build Donlin Gold: $6.679 billion.
*NovaGold’s portion of costs: $3.34 billion.
*Galore Creek project:
No gold recovered despite numerous attempts since 2003. NovaGold and its partner ran out of money for the copper-gold-silver project and suspended construction in 2007 when they discovered construction would cost around $5 billion.
*Current status: In February 2011, the former president declared, “Galore Creek is one of the most significant copper-gold projects in the world.” Eight months later, NovaGold began trying to sell its 50% stake. In 2012, the company said it expected a sale by the end of the year. Still waiting.
*Unfortunate promotional activity:
No obvious recent professional promotions; but the stock trader prosecuted for stock manipulation at age 15 - Jonathan Lebed - successfully hyped NovaGold through his Lebed Biz in 2010 to $11.62 per share. Red Chip also promoted the company in the same time frame.
Alliances with such promoters are huge red flags for investors.
Universal Display: Patent Cliff, Analyst Thumbs Down, And A Baseless Rumor
The essence – the thing that makes Universal Display what investors have come to believe it is – falls apart in 2017.
Universal Display trades under the symbol “OLED” and depends upon key patents for the technology that the company sells. This technology pertains to essentially an organic light-emission dust used in screens for smart phones or television sets.
But here’s the key problem: The company’s fundamental patent is scheduled to expire in 2017.
And other patents appear to face an expiration date of 2018 and later.
Here is the pertinent information from Universal’s 1998 SEC filing: “In December 1997, the first patent, titled "Transparent Contacts for Organic Light Emitters", was issued to Princeton University by the U.S. Patent and Trademark Office … In January and February, 1998, two additional patents relating to Multicolor Organic Light Emitting Devices were issued to Princeton University. Princeton University and USC have filed approximately 30 additional patent applications relating to the OLED technology in the United States, and have filed for intellectual property protection internationally.”
Patents typically expire 20 years after application:
When these patents hit the patent cliff starting in December 2017, the technology falls into the free-for-all known as the public domain.
Princeton technology licensing experts have not gotten back to TheStreetSweeper with a comment.
Likewise, the company has not responded to our request for comment but investors may find other viewpoints here.
Meanwhile, check out these additional killer risks poised to hammer Universal stock:more...
The9 Limited's Battle Accelerates: Tragic Timing, Gamer Use Declining, Partnership Blunders
Just when it seemed The9 Limited’s (NCTY) timing of the Cross Fire shooter game couldn’t get much worse – it did just that.
Less than two weeks after the mass shootings in Paris, The9 announced a deal on Nov. 25 to distribute the Cross Fire 2 sequel in China.
Incredibly, Cross Fire 2 is set for release in China today. Though the website provided a countdown to launch of Cross Fire 2 last night, it states the site is under maintenance this morning. But the game was tragically scheduled for release today to Chinese online gamers just a couple of weeks after the Colorado Springs shootings – and just eight days after the San Bernardino massacre.
Though the latest massacres didn’t happen in China, the government is known for cracking down on societal ills.
Indeed, the Chinese government can – and has – shut down websites deemed socially destabilizing. In fact, China’s Ministry of Culture outlawed godfather and mafia games in 2009 because of the potential negative impact on young people.
So the Ministry may look even more critically at shooter games like Cross Fire2 in the aftermath of the recent massacres. See a sample of the graphics below.
Yet the stock has somehow managed to stay aloft.
Shares rose after The9 announced it will operate Smilegate Entertainment’s CrossFire 2 sequel in China for five years at a stunning cost of about $500 million -$50 million upfront, $450 million in milestone payments plus more in royalty payments.
Even if investors push aside the unconscionable timing, significant questions still loom.
How will the Shanghai, China-based company - with a nearly $21 million net loss - pay for something so expensive and uncertain?more...
Paycom: Nervously Patching Leaks?
Iconic investor Warren Buffett once said, "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."
Indeed, Paycom Software (PAYC) investors may be getting tired of patching leaks in this company that provides payroll software-as-a-service for small and medium sized businesses.
One leak will become a veritable torrent in a matter of weeks, when current investors' shares could face major dilution. That's because of the Dec. 28 release of about 18 million shares that Paycom insiders have had locked up for months.
That's right. Millions of Paycom shares will become eligible to hit the public auction block, according to the prospectus supplement.
See more information here and below:
“The date of this prospectus supplement is November 12, 2015.”
“After this offering, our officers, directors and selling stockholders will be subject to lock-up agreements with the underwriter or us that restrict their ability to sell shares of common stock until 46 days after the date of this prospectus supplement. After the lock-up agreements expire, an additional 18,441,518 shares of common stock (or 17,766,518 shares of common stock if the underwriter exercises its overallotment option in full) will be eligible for sale in the public market…”
The selling shareholders may be seen here:
Clever insiders can now more easily back out of their investment in Paycom – a company they probably realize is poised to feel the effects of a fading revenue driver - the Affordable Care Act.
In fact, a major investor, Welch, Carson, Anderson & Stowe, deserves our golden plastic wheelbarrow prize for dumping stock more rapidly than any we’ve ever before witnessed.
The private equity firm and entities have unloaded some 5 million shares. In one day.
On Nov. 24, the firm sold almost every single share of Paycom stock:more...
Zagg: Glass Screen Protector Company Shattering Under Pressure
Zagg (ZAGG)shares have rallied near 52-week highs, all the more perfectly poised to shatter amid numerous lawsuits, market deterioration, an ongoing SEC investigation, an executive resignation, insider selling and a recent $100 million shelf filing which could bring excessive dilution.
Formerly known as the fumbling Chinese academic regalia manufacturer Amerasia Khan Enterprises, this Salt Lake City, Utah company makes screen protectors for smartphones. The company has turned in one of its worst net income reports since 2011:
(Source: SEC filings)
Though Zagg is currently expected to increase earnings about 13 percent to 68 cents next year, TheStreetSweeper believes it will not hit that figure. In our view, the market share will continue to fracture as customers turn to the vast number of cheaper alternatives.
Zagg has not responded to our request for comment but investors may find other viewpoints here. Meanwhile, here’s a look at the red flags indicating Zagg is poised to disappoint:
*Major Dilution Looming With Recent $100 Million Shelf, Insider Selling
Now that Zagg is trading high, insiders can’t wait to get out. The company just filed a $100 million shelf registration that could bring extreme dilution to current shareholders, available here. At the same time, seven insiders have been set up to sell their shares, further increasing that dilution potential.
Here are the lucky seven insiders who may now dump their shares:
(Source: SEC filings)
In October, CEO Randall Hales jumped out with the most recent insider selling with the disposition of 43,000-plus shares, shown here.
Both of these selling activities are fairly good indications that Zagg has approached peak price.more...
magicJack VocalTec: The Disappearing Business Trick
Any smidgen of magic left in magicJack VocalTec (CALL) is vanishing quicker than street magician David Blaine can make a new quarter disappear.
Now the former star of annoying, late-night TV commercials only wishes it could make its core business model reappear.
MagicJack offers a device that is plugged into the computer to allow consumers to make local or international phone calls for about $40 per year, plus $20 for service. Its second offering is VoIP or voice over Internet protocol for small or medium enterprises, an area dominated by the AT&Ts and Verizons of the world.
Though magicJack enjoyed an early out advantage in 2007, the benefits have fallen apart like a busted magic trick.
After an earlier reasonably-upbeat article, PC Magazine revisited magicJack in 2011 and rated it “fair,” adding: “(W)hen magicJack debuted, nothing else like it existed. That isn't the case anymore. In the face of competition, magicJack's poor interface, pushy attempts to up-sell you, on-screen advertisements for its own product, and general lack of support make it hard to recommend now.”
MagicJack faces numerous other issues that make the stock impossible to recommend now, including:
*Horrid consumer reviews
*Perilous declines in users, activations and app users
*Consumer market is disrupted by free alternatives, unlimited talk phone plans.
*Latest “enterprise initiative” features inexperienced businessman, limited overall potential
Investors may read other viewpoints here. Meanwhile, TheStreetSweeper breaks through the smoke and mirrors to reveal magicJack’s risky reality.
Voltari Corporation Alert: Buyer Beware
Ridiculous: $VLTC enters real estate biz, stock up over 100%. Growth? NO! With only $2.5m cash, need raise. BUYER BEWARE! We’re short
Here’s what the company states: In addition to our entry into the real estate investment business as described above, the Company intends to explore additional strategic opportunities from time to time, which may include opportunities with respect to its intellectual property, investments in various industries or acquisitions.
August 2015, Voltari Corporation (“we", “us”, “Voltari” or the “Company”) committed to and began implementing a transformation plan pursuant to which, among other things, we exited our mobile marketing and advertising business and entered into the business of acquiring, financing and leasing commercial real estate properties. The Company intends to lease such properties pursuant to so-called “double net” or “triple net” leases.
Investors must watch out with this stock. Voltari needs cash and will likely take advantage of this run-up to issue stock. Dilution appears imminent. Don’t get stuck holding de-valued shares.more...
Titan Machinery: Titanic Downside Risk
As it struggles to steer around revenue and cash flow icebergs, Titan Machinery (TITN) is beginning to look less like a league of strong mythical Greek gods … and more like the “unsinkable" Titanic.
North Dakota-based Titan operates a dealership network focusing on agriculture and construction equipment. The stock has bounced around like a seasick landlubber, with shares rallying from ~$10 per share in early September to the recent $12.33-$14.40.
That stock rally is despite Titan turning in two quarters of the lowest sales numbers the company has seen in three years.
Indeed, second quarter revenue of $334 million represented a 25.9% year-over-year plunge - the worst revenue drop within the entire industry, according to Thomson Reuters.
The mighty decline – which hit all four revenue segments - resulted in earnings of zero. That $0.00 in earnings caps off eight straight periods of negative earnings.
Here are highlights of the choppy waters Titan is trying to navigate:
*Misstated losses, but no amended 10-Q
*Related-party connections worth $100 million-plus
*Industry’s worst revenue drop; recent low-to-negative earnings
*Industry’s worst inventory buildup
*Struggles to pay off floor plan debt; lay-offs and store closings likely to continue
*Historical habit of revising guidance; then missing numbers significantly
*Low analyst ratings
*Among the industry’s worst performers
The company has not responded to a request for comment but investors may find other viewpoints here. Meanwhile, let’s look at why this is a good time for Titan investors to start looking for lifeboats.
* Losses Misstated: Titan Calls 50% Understatement “Immaterial”
Among all Titan’s reported losses, two instances stand out above all the rest.
First, in April 2014, Titan managers quietly disclosed that the company had released a quarterly report containing drastically inflated assets and understated losses.
Astute investors had to dig up that news - not in a standard amended quarterly report – but in a note near the bottom of a financial report issued five months later in September.
The net loss turned out to be far worse than the stated $4.2 million. The loss was actually $6.5 million.more...
Badger Meter: Digging Into Major Downside Risk
After three down quarters in a row, Badger Meter (BMI) will have to dig like mad to suppress another big profit decline next quarter.
The water meter company reported year-over-year earnings dropped off a cliff – a teeth-rattling 18.6 percent. Clearly dismayed company leaders called financial results “disappointing” four times during the last conference call.
No wonder. The chart below shows Badger’s year-over-year earnings performance.
(Source: Badger SEC filings)
But even more disappointments loom ahead. In fact, normally optimistic analysts expect a 14 percent decline in 2015 earnings versus last year.
The company has not responded to a request for comment, but investors may find other viewpoints here.
Before we focus on several highlights, let's look at some additional downside risks for the Milwaukee, Wisconsin-based water meter and flow-measuring technology company:
*Shares trade at a ridiculous 14.6 times EBITDA and 33 times Earnings Per Share.
*Stock currently trades near analysts’ top price target.
*Normally optimistic analyst firms downgrade Badger or rank it a “hold.”
*Insiders are dumping company stock.
*A history of earnings misses.
*Badger blames Itron for its recent revenue miss.
*A cash position of only $4 million.
*Risks are exacerbated by razor-thin margins, fierce competition, economic softness, continuing supply and inventory problems, bad weather and poor flow-measuring technology demand for oil rigs during the oil patch malaise.
* More Disappointments Poised To Spill Over Into Next Quartermore...
Turtle Beach: Recall, Seven Other Issues Pose Significant Downside Risk
After living on Easy Street for a month, Turtle Beach Corporation (HEAR) is now quietly recalling $6 million in next-gen products.
The recall of almost 60,000 China-manufactured gaming headsets began last week, according to the US Consumer Product Safety Commission. The recall came after consumers reported mold on gaming headsets that poses a health risk.
The XO FOUR Stealth headsets were sold in stores and online this year from June to September.
Here’s a snapshot of the government notice:more...
MagneGas: A Zombie Fest Bursting With Hype, Horrifying Financials, Downside Risk
MagneGas Corp. (MNGA) activities and outlandish hype remind us of those lurching, snarling, misunderstood zombies populating the horror film “Night of the Living Dead.”
At the center of the Tarpon Springs, Florida company is founder, Ruggero Santilli. The controversial nuclear physicist has been called everything from brilliant to a fringe scientist.
In a manuscript, “HHO gas” was presented as a new form of matter by Mr. Santilli shortly before he started the company.
A Brown University professor wrote in the International Journal of Hydrogen Energy of Mr. Santilli’s “many serious misinterpretations and, misunderstandings of the “data” presented in this (Mr. Santilli’s) manuscript.” Mr. Santilli responded to the professor’s criticism here and built a reputation as a scrappy scientist who used the legal system to attempt to force detractors to take his ideas seriously.
MagneGas is built on Mr. Santilli’s machine designed to gasify pig manure or other liquid waste into fuel.
This “Magnegas” results when the waste is passed through an electric arc and heated. The alternative fuel is primarily used in welding.
But the technology is unproven on a large-scale industrial basis and might not work well on that basis – according to regulatory filings - or produce a fuel able to compete against standard acetylene.
MagneGas has only been able to claim revenue of ~$584,000 last quarter after acquiring Florida welding gas distributor, Equipment Sales and Services, in 2014. Today, the company announced the subsidiary “Lands Largest Single Customer in Company History.” But it is just so much more hype. The touted $400,000 per year customer “has indicated they will be purchasing all of their industrial gases and welding products throughout the year from E.S.S.I and their initial orders have been placed and delivered.”
There are only two months left in this year. Running the math, then, that order for the entire year would amount to just about $66,000 revenue.
And there’s no guarantee the order will be renewed.
While investors may find other viewpoints here, TheStreetSweeper presents in an ongoing investigation the first of six reasons MagneGas hands out downside risk like candy.
*Bought and Paid For Hype
MagneGas is so overvalued and its prospects so low, wise investors would normally run as if zombies really were after them.
So the company buys investors’ love.
In the last few years, MagneGas stock has been hyped by stock promoters an astounding 52 times at a cost to MagneGas and a third party of over $260,000.
Indeed, our analysis of stockpromoters.com data reveals eye-popping details.
*MagneGas itself paid stock promoters roughly $59,000 and 650,000 shares of its own stock.
Yet those payments are just the beginning.
*MagneGas friend ACS Financial Consulting Group pitched in hundreds of thousands of dollars for these stock promoting sites to hype MagneGas through newsletters and other means.
Here’s a snapshot:more...
MeetMe: Seven Great Reasons To Stay Away From This Meat Market Stock
The meat cleaver is poised to come down on MeetMe (MEET), likely chopping those shares very sharply.
MeetMe is a cringe-worthy dating app that recently agreed to fork over $200,000 to settle litigation with the San Francisco city attorney’s office. The office alleged the way MeetMe allowed users to meet new people through their mobile devices violated California law for 13-to-17-year-old users.
While the city accepted MeetMe’s revisions, we think MeetMe promotes a “meat market” mentality and should be closed to anyone under 18.
We’ve found many other reasons to avoid this company.
Below are TheStreetSweeper’s top seven reasons we believe this stock is excruciatingly risky.
MeetMe’s mobile downloads are not growing, according to App Annie data, suggesting the user base is likewise probably not growing. So it’s ridiculous to pay a high multiple for this stock.
(Source: App Annie)
And compared with larger rivals, such as Tinder, MeetMe greatly underperforms, as shown below:
(Source: App Annie)
While MeetMe’s mobile users are increasing slightly, look at the striking decline in revenue per user:
(Source: SEC filing)
Anavex Life Sciences: Biotech Pump Goes On ... II
The Anavex Life Sciences (OTC: AVXLD) chief executive told TheStreetSweeper that he has no idea who was so kind as to pay $200,000 to a penny stock newsletter to hype the company stock.
“Absolutely not by us. That’s crazy!” CEO Christopher Missling told TheStreetSweeper in an Oct. 13 telephone interview. “We only do very ethical work. Let me tell you this. We really don’t want any association with anything like that. It’s absolutely inappropriate.”
The Stockpalooza email was reproduced in a Hotstocked newsletter here, and sounds like a paid promotion:
Importantly, Stockpalooza removed all doubt about whether the hype was bought and paid for. The newsletter said in its disclaimer that it expects $200,000 for promoting AVXLD:
“StockPalooza.com.com expect to be compensated Two Hundred Thousand Dollars Cash via Bank Wire Transfer by a third party for a 1 Day Marketing Program regarding AVXLD. This compensation/expected compensation, expired or not, is a major conflict of interest in our ability to be unbiased. Therefore, this newsletter should be read as a commercial advertisement only. The third party, company, or their affiliates may wish to liquidate shares, which has the potential to hurt share prices.”
The complete disclosure is below:more...
Boingo Wireless: Why This Stock Will Soon Swoon
Boingo Wireless (NasdaqGS: WIFI) is all dressed up for the ball, jitterbugging in white loafers while the competition coolly waltzes away with the belle of the ball.
Try as it might, the Wi-Fi hot spot provider has been slightly out of step since its founding in 2001.
Indeed, Boingo has racked up ~$63 million in losses and faces these investment risks:
Shelf Registration: Boingo recently cleared the way so it can sell millions of shares, posing looming dilution of current stockholders’ shares.
Insider Selling: Executives are selling company stock like mad. The chief executive and chief financial officer alone have unloaded about 150,000 shares in the last four months.
Accelerating Risk: Free mobile Wi-Fi offered by airports, coffee shops, hotels and telecom companies pose an ever-growing risk to Boingo’s business.
Nothing Special: Boingo depends on open-source software and unlicensed spectrum to provide Wi-Fi – both available to everyone.
Terrible Finances: Shareholders’ 2014 losses of $0.55 per share are expected to worsen to $0.77 per share this year.
Institutional Disdain: Top institutional firms ignore Boingo, as even insignificant institutions are selling out their Boingo positions.
Cushy Compensation: Despite investors’ horrible returns, Boingo executives hit multi-million dollar jackpots.
Excessive Complaints: Boingo suffers from extensive customer complaints reported on consumer complaints website
Boingo declined TheStreetSweeper’s request for comment, but investors may find other viewpoints here.
Meanwhile, let’s look at the reasons we’re convinced overvalued Boingo is poised to dance away current stockholders’ hard-earned money.
Many upset customers have logged complaints about Boingo on consumer complaints website complaintsboard.com, here. A few highlights:
** “When it comes to Boingo, it's way way worse than "accidental" charging.
I paid for their one-day pass, out of desperation since I usually don't give out my credit card details online, one year ago.
ONE YEAR AGO. Since then, I have clicked "Cancel" and closed down the GoBoingo! pop-up whenever it shows up. Since there was no setting for disabling the pop-ups (fishy fishy!), and since I had no intention of using the service ever again save for emergency, I went into my computer settings and made sure Boingo wouldn't automatically start up.
So you can imagine my surprise when, going over my account bills for the past three months - this would be about 10 months after originally using the Boingo "service" - I see four separate charges from Boingo Wireless.”
** “I have just discovered that I have been charged $9.95 on my credit card for 3 YEARS.
ONCE I used Boingo in an airport in Houston, TX. I had to think very hard to even remember this. I have been charged every month since that time.
When I called Boingo to discuss, they acted as if this was the first time they'd ever heard of such a ridiculous thing happening.”
**”Boingo is deceptive and makes fraudulent charges. Boingo deliberately conceals aspects of the "As you Go" $7.95 24-hr. access charge for web connection at U.S. hotspots.”
** “After signing up to use boingo wireless for one day at an airport, I continued to incur charges of $7.95 on my credit card bill. They claimed that I continued to use their service, which was false. This appears to be a common complaint. No one should use boingo wireless. Hopefully boingo.com will be held accountable.”
**” … they did the same thing to me and refused to refund the extra charges. I live in FL, but "Bogus" Boingo Wireless is based in South Santa Monica, California. I wrote the attorney general there and asked him to investigate Boingo business practices. I've also filed a complaint with the FL state attorney and the CA Better Business Bureau. That's not all, I am on a mission. I bought www.ihateboingo.com I am currently working on the website. Boingo needs to be exposed, they are conducting the same business practices that Blockbuster had attempted and looked where it took Blockbuster.”
Boingo’s business primarily revolves around “DAS.” DAS or Distributed Antenna System is an antenna network installed in convention centers, office buildings, etc. to access the wireless network at peak times. Competing venue-based options include small cells.
AT&T and Verizon are the DAS giants. AT&T annually installs hundreds of its systems in stadiums such as the Dallas Cowboys stadium, campuses, airports and other venues across the country.
Verizon used its own DAS recently at the Daytona International Speedway, as well as various football stadiums.
Here’s how CEO David Hagan described the way Boingo works in the DAS segment – a lengthy process he said is usually a 12-month cycle:more...
Anavex Life Sciences: Biotech Pump Goes On And On And ...
If we didn’t know better, we’d think Anavex Life Sciences Corp. (OTC: AVXL) enthusiasts had ripped off a “Saturday Night Live” sketch featuring pump-you-up guys Hans and Franz.
Picking up three patents and one patent application, Anavex conducted a reverse merger in 2007 and switched from a digital-to-photo-print business targeting corner stores into a biotech company targeting Alzheimer’s.
Today, the company has no commercial product, hasn’t earned a penny since inception and does “not anticipate earning any revenues” until it can convince some other company to come aboard.
The company has lost $61.8 million over about 12 years of operations and is living on the ragged edge of survival.
And don’t let the stock price fool you. Though it sports an astonishing $230 million-plus market valuation, this stock is worth a fraction of today’s price.
The company has not responded to TheStreetSweeper’s request for comment but investors may find other viewpoints here. We’re just scratching the surface with this first look at a batch of highly promotional biotech stocks poised to dive.
*”We’re Here to Pump (clap) You Up!”
The 25 top biotech giants such as Johnson & Johnson and Novartis and Eli Lilly do not rely on hype to push their stock.
But Anavex has everyone from the CEO to pump sites to message board fans clapping their hands and cheering on Anavex with, “We’re here to pump you up!”
The chief executive officer, Christopher Missling, had this to say in a recent interview:
“Anavex has now a team of big pharma and biotech experts, doubled the number of Scientific Advisors which is mostly Medical Doctors, raised a company's record amount of $10M in one funding transaction, advanced after that quickly into Phase 2a, licensed additional promising compounds into the company. Anavex is significantly more advanced than in 2007.”
Yet Anavex filings say it operates with just “four (4) full-time employees, and we retain several independent contractors on an as-needed basis.” (Don’t miss the section below titled “Executive Compensation” to put employee compensation into perspective.)
Other concerning promotional efforts include:
The CEO sounds highly promotional - talking about reversing the disease and stopping the disease today (despite having its experimental drug just barely in the human testing stage involving dose toleration of just 32 subjects) - in this one video of four Anavex videos on Wide World of Stocks. WWOS is a site Timothy Sykes connected with Viral Genetics and one that also discloses that its employees sometimes receive investments in companies it features.This series just begged for a dose of the brash objectivity of SNL character Roseanne Roseannadanna.
B. Additional promotion on Stock News Now, here, a rather well-known microchip promotional site.more...
Torchlight Energy Resources: Six Reasons This Former Pole-Dancing Company Is Running Out Of Energy
Hang onto your G-string. Torchlight Energy Resources (NasdaqCM: TRCH) – formerly a pole dancing studio – appears positioned to shimmy down to reality.
The oil and gas company danced onto the public stage as Pole Perfect Studios (OTC Bulletin Board: PPFT), a business built around “a fireman’s pole often found in gentleman’s clubs” ala the one-time fitness fad reminiscent of strip clubs. Pole’s founders invested less than a penny per share to start the biz and raised a few thousand dollars in 2008 by selling shares for 7 cents apiece.
But Pole teetered. So in 2010, the pole dancing company pulled off its fake eyelashes, changed its name and ticker symbol, and emerged as an oil and gas company.
Now operating out of a small office leased from a Plano, Texas travel agency (shown here), Torchlight today claims five projects in Texas, Oklahoma and Kansas. Much like its predecessor, Torchlight exists as an un-productive, money-chewing entity that hands investors a minus 360 percent return on equity.
In fact, financial despair has forced Torchlight to offer an extremely liberal interpretation of its oil reserves in an apparent attempt to attract investors.
Torchlight was unavailable for comment by deadline, but investors may find other viewpoints here. Meanwhile, here are the top six reasons TheStreetSweeper would never own this stock.
1.*Outlandish Oil Reserve Estimates
Torchlight’s estimates of the value of its oil reserves – oil still in the ground – are completely out of touch with reality.
Why? The company bases estimates on $91.48 oil prices! That’s right.more...
Clearsign Combustion: Ready To Implode On Losses, Hype, Looming Dilution and More
Clearsign Combustion (CLIR) shares have virtually exploded but research suggests the company itself may be on the brink of implosion.
TheStreetSweeper offers this quick hit report highlighting the top risks poised to burn up the stock value.
The Seattle, Washington-based company is working on technology to improve emission performance and efficiency of combustion systems. The technologies are called Duplex and Electrodynamic Combustion Control or ECC.
But Clearsign has forgotten investment guru Warren Buffett’s advice: “Rule Number 1: Never lose money. Rule Number 2: Never forget Rule Number 1.” The company consistently loses money, offers zero-revenue, no significant sales since inception in 2008, no analyst interest, little real institutional interest, an uncertain future and depends on penny stock promotions to keep the stock fired up. A stock offering may be needed before long just to fuel company operations.
While other viewpoints are available here, we present details of the chief investment risks:
*Looming Dilution - Clearsign will likely conduct another stock offering within six to 12 months.
The company has always depended on stock offerings to stay in business. The finance-reviving stock offerings are shown in filings, here, and include:
- April and May 2012 – Initial public offering of 3.45 million shares at $4 per share. Cash to Clearsign: $11.6 million.
- March 2014 – Direct offering of 812,500 shares at $8 per share. Cash to Clearsign: $5.8 million.
- February 2015 – Public offering of 3 million shares at $5.85 per share. Cash to Clearsign: $16.3 million.
The chart, below, graphically shows how dilutive stock offerings keep Clearsign on its feet. The share count continues to rise while the cash burns.more...
Fenix Parts: This Automobile Parts Seller Could Be Headed To The Junkyard
Fenix Parts (Nasdaq: FENX) resembles the Johnny Cash hit describing the Cadillac put together "One Piece at a Time," from parts he and an auto-worker buddy gradually steal from the assembly line and eventually cobble into a "Psycho-Billy" heap.
It took the determined workers about 24 years to create a weird Caddy at a cost estimated to exceed the price of a showroom model. But Fenix took only four months to roll-up a dozen companies into a money-losing jalopy arguably worth a fraction of its ~$190-million market valuation.
Westchester, Illinois-based Fenix operates like a legal chop shop. The company buys broken-down heaps from automobile auctions, pulls them apart and then sells the parts and scrap metal. It operates more like a junkyard at several locations, where the company buys junkers from individuals. Customers range from body shops and car repair shops to "shade tree mechanics" and hobbyists.
Fenix has not responded to our request for comment, but investors may read various viewpoints here. Meanwhile, TheStreetSweeper presents the executive summary highlighting Fenix investment risks:
1. Losing Money - Fenix is running in the red. It's almost out of cash.
2. Risky Rollup - The company IPO'd four months ago as a rollup and has already acquired a dozen companies. These rapid acquisitions result in distracted management and accelerated costs associated with buying, integrating and running very different businesses.
3. Directors Flee; Management Overwhelmed - The chief executive apparently lacks experience in the auto parts business and has installed equally inexperienced former co-workers as directors. Those two directors recently departed under rather odd circumstances.
4. Messy Financials - Fenix is also challenged by messy financials, apparent inability to file financial reports on time and a Nasdaq deficiency notice. All may well suppress or kill investor interest in the stock.
5. Dilution Looming - Fenix will likely soon sell stock - ultimately diluting current shareholders' stock. In fact, the Securities and Exchange Commission has already approved the paperwork to sell more stock at any time.
6. Pending Insider Selling - Insiders will be able to sell currently locked up stock beginning Nov. 10.
*Risky Rollup - Running In The Red; Running Out Of Cash
A risky rollup, Fenix acquired its first 11 corporate entities for ~$93 million cash plus about 3 million shares of stock just days after the company's initial public offering in May 2015. The CEO had prepared for that moment with a series of private stock offerings that cost insiders 10 cents apiece for some stock and $10,000 to $13,000 apiece for other stock, which ultimately underwent a 2,000-for-1 stock split.
Fenix had to lower its hoped-for $10 offer price to $8 per share and increase the share count to 12 million shares. Fenix was forced to borrow millions to pay the full $93 million acquisition expense plus a little left over for operating costs.
Fenix soon rapped its own fingers with a rusty wrench once again. It seems the acquired companies began reporting unexpectedly lower revenues - dinged and dented by lower scrap prices.
Fenix Parts most recently submitted, first quarter, financials are shown below:more...
Flotek Industries: An Oil Patch And Cosmetic Counter Mess Poised To Drop
Flotek Industries (FTK) strives to make money in oddly different areas – the oil field and the cosmetics counter. And it is failing miserably.
The company just reported an astounding $12.5 million quarterly loss or negative 23 cents per share.
This odd business got an even odder reaction to its earnings report. The stock price rocketed!
That’s right. But we’ve drilled into Flotek filings and other publicly available information only to find a dry hole… and a broken perfume bottle.
*What Is Flotek?
First, Houston-based Flotek sells products primarily to oil and gas companies. The flagship “Complex nano-Fluid,” or CnF, is a chemical added to water in hydraulic fracturing operations used to make it easier to pull oil and gas from below ground. Energy Chemistry Technologies accounted for $11.9 million income last quarter. Rig counts and oil prices keep this division on a short, cruel chain.
Second, Flotek buys citrus oil to process and sell to the oil, flavor and fragrances industries. Consumer and Industrial Chemistry accounted for $2.7 million income.
Third, the company builds downhole drilling equipment. Drilling Technologies accounted for a $21 million loss last quarter.
Fourth, Flotek assembles equipment such as rod pump components and valves. This Production division dinged Flotek with a $1.6 million loss last quarter.
*Why Did The Stock Price Recently Rocket?more...
Energy Focus: Massive Risks Coming Into Focus
TheStreetSweeper alerts investors that the latest risk associated with Energy Focus Inc. (EFOI) stands to hammer the stock price.
EFOI stock went ballistic today – jumping by $2 in early morning trading to settle in the $16-$17 range. The rise coincided with Roth Capital Partners’ snap decision to raise EFOI’s price target 7 bucks to $23 per share.
While bulls may argue EFOI’s business and margin improvement sparked the analyst’s write-up, we believe something less obvious may be going on here.
EFOI has in its back pocket $25 million worth of registered stock that it can freely sell to the public at any time.
With its eye on a potential stock offering and seeing the stock price trading around record levels in recent days, we believe Roth saw an opportunity to help push EFOI higher.
Indeed Roth analysts had provided an update the day after EFOI released positive earnings on Aug. 5. So it seems odd that Roth would provide a new release two weeks later with unchanged sales and EPS estimates. No real new information. Just a new head-scratcher price target.
Now that the already over-valued stock has rocketed even higher, Roth figures it’s sitting pretty in the cat-bird seat.more...
GTT Communications: Seven Reasons To Avoid This Las Vegas-Style Bet
The market has grabbed GTT Communications (NYSE: GTT) under one arm and a fake Elvis under the other and headed for Las Vegas.
Managers have undoubtedly watched in shock as the market slapped a nearly $800 million value on the telecommunications services provider. Never mind that GTT is losing money and its forward price to earnings is an unbelievable 37 to 1. The market still insists on betting on GTT, humming “Viva Las Vegas” all the way.
But trouble lies ahead. Really, there’s so much trouble all around that a half-dozen happy Elvis impersonators couldn’t even beat the affects of investing in GTT at its current price of ~$22.
Investors may read other viewpoints here. Meanwhile, here are the top seven reasons GTT is due for a haircut and sideburn trim:
*1. From Shell To Risky Roll-up
Many of GTT’s financial issues can be traced back to its very foundation.
The company, formerly called “Mercator Partner Acquisition Corporation,” was simply a shell in 2005, looking for a business to run.
After it settled on providing telecommunications and Internet services, GTT began acquiring companies. It created 45 subsidiaries as it rolled up about half-a-dozen companies into its portfolio - including a division of MegaPath just last February that cost a whopping $144 million plus $7.5 million in GTT stock.
This undoubtedly difficult-to-manage assemblage of small companies has found itself scrambling to compete for a sliver of cloud-based business against established companies such as AT&T, Xo Holdings, Verizon and Microsoft.
TheStreetSweeper has seen many roll-up companies and despises most of them. We have warned investors about the fluctuations and risks associated with roll-ups such as Tangoe (TNGO $19.55 then, now ~$7), Swisher Hygiene (SWSH $8 then, ~$1 now) and Revolution Lighting (RVLT $4 then, now ~$1.).
So now we're inducting GTT into our Rock'n Roll-up Hall of Fame. But, first, let's look at the financial issues that GTT can thank for their help in making this unfortunate honor possible.
*2.Neck-Deep In Debt
GTT depends on a mountain of debt to keep the doors open – and feed its appetite for acquisitions.
The company is now shouldering $215.6 million in debt. Cash has dwindled to just $19.4 million. So the company's debt is over 10 times the cash in its piggy bank.
Now GTT is loaded with debt and losing buckets of cash.
*3. Net Losses Become Substantial
Indeed, GTT hasn't seen six months' worth of operations in the black since ... yikes! ... 2010.
The chart below, based on SEC filings, shows how GTT has consistently disappointed investors:
So GTT’s losses dramatically deepened beginning in 2013.
In fact, SEC filings indicate the company just suffered the second worst 6-month loss since the company’s inception a decade ago.
*4.Historical Earnings Misses
Last quarter, management credited GTT sales improvement primarily to acquisitions. But investors actually lost 32 cents per share – an enormous miss since Wall Street expected a loss of only 6 cents.more...
Vonage: Five Top Reasons We're Short This Stock
Billionaire investor Warren Buffett once said, “Price is what you pay. Value is what you get.”
We argue that Vonage Holding Corp. (NYSE:VG) is not delivering on the value as beautifully described by the Oracle of Omaha.
TheStreetSweeper offers this quick hit report on Vonage, provider of a VoIP (voice over Internet protocol) service that uses a customer’s Internet connection to make and receive phone calls via phones or devices. The company’s market cap is $1.37 billion and its price-to-earnings ratio is a stunning 62. Other viewpoints are available here.
Why the stock price jumped
Vonage shares jumped Monday, when Canaccord Genuity initiated coverage on Vonage with a “buy” and a $7.50 price target. The report boosted the already highflying shares about 4 percent to ~$6.49.
Suddenly, Vonage found its stock price in this situation:
Vonage shares are currently beating the consensus price target of $6.31 per share, according to marketbeat.com data!
So Vonage could be in a nearly perfect position to plummet at this very moment.
Why we expect the stock to plunge
*Ridiculous insider selling
They say you can judge a man by the way he wears his hat or the shoes he kicks off at the end of the day. We don’t know about that, but we do know that you can usually tell a lot about a company by who is dumping its stock.
In Vonage’s case, company officers and directors are selling their company stock like crazy.more...
Trupanion: We're Sending This Pet Insurance Company To The Dog House
Stock in Trupanion (NYSE: TRUP) has transformed in recent weeks from a bad, bad dog into the Lassie of the pet insurance world.
But hold onto your leashes. This Seattle, Washington-based company has been quietly growing enormous pit-bull fangs and looks ready to turn on shareholders.
Our executive summary highlights why TheStreetSweeper is bearish on this stock and believes TRUP will ultimately bite those loyal shareholders.
* Hello, 2021: Unraveling TRUP’s numbers reveals up to 23 quarters to wait for the possibility of any meaningful profit.
*TRUP’s insurance product: Negative reviews dog the company.
*Dog-gone bad 16-17 percent margins: Why we shouldn’t be surprised.
*TRUP's “recast” numbers: Can't fix customers' value-to-cost ratio.
*States’ insurance commissioners: Let’s jump TRUP.
*Sell, sell!: Insider unloads company stock.
*Company headquarters: Just embarrassing.
While the company has not responded to TheStreetSweeper’s request for comment, investors may read bullish viewpoints here.
* TRUP’s pet enrollment numbers revelation: Wait ~23 quarters for scale up, any possibility of meaningful profit.
TRUP went public in June 2014 and has suffered significant net losses since inception 16 years ago. But shareholders will sometimes hang in there with a company awhile as long as they can imagine light at the end of a rather short tunnel.
When we ran the numbers, however, we were shocked at how long TRUP investors apparently will have to wait.
Cash flow break-even should happen by mid-2016, CEO Darryl Rawlings said during the May earnings call. But he indicated anything resembling meaningful profitability will come only when TRUP can scale enough to reach 650,000 to 750,000 enrolled pets:
“We manage our business base on cash flow and we are on track to achieve cash flow break even by the middle of next year. Once we achieve operational scale of 650,000 to 750,000 enrolled pets our intention is to have our fixed expense scale as a percentage of revenue and our discretionary margin should continue to expand.”
So the obvious questions are: How many more pets will TRUP need to enroll in its insurance program before they hit the target?
And how long will that take?
TRUP currently reports 241,808 subscription pets enrolled. If the company can stay on track at around 12,500 net additions per quarter (which, if even possible, will likely mean gobbling up millions more in marketing), it should take TRUP somewhere around 14 quarters to 23 quarters to hit the target.
Yipes ...That’s about three to six years.
That means TRUP should reach the target sometime between the years 2018 and 2021!
At that rate, TRUP is expecting investors to be phenomenally patient.
Particularly if we factor in the stock performance (down ~30%, depicted by the blue line) versus the Dow (up ~2%), NASDAQ (up 5%) and S&P 500 (up~14%) over the past year, as shown below.more...
Tucows: Why Its New Internet Business Will Hand Investors A Cow Patty
You’ve almost gotta love Tucows (NASDAQ: TCX) for its humor, as demonstrated by the company reportedly taking a real cow to a conference, plus its depiction of two cows in its logo:
But the negatives inherent in Tucows’ business plan utterly outweigh its funny personality.
The stock for this Toronto, Canada-based domain name registrar and wireless service provider has been running wild and crazy the past two months. Indeed, Tucows jumped over the moon at $32 on July 21 and then began declining somewhat. The stock is now on the brink of turning around and trampling investors before they can jump out of its path.
Before Tucows hooks another one, check out our executive summary briefly describing the top reasons we think Tucows’ stock price is ready to drop.
*Troubled Trio – The company reports two operating segments - domain services, consisting of domain name registration, and network access services, consisting of both retail mobile phones/services and Internet service over fiber networks. Tucows faces growing challenges in all areas.
*Faltering Fiber – The stock rallied on announcements of Tucows’ entry into the Internet business. But Tucows lacks the multi-millions to build a fiber network. And our research shows the Ting fiber business won’t produce meaningful revenue now … and probably not ever.
*Yelling “Sell!” – Insiders have been hitting the sell button on Tucows’ stock.
*Crumbling Core - Tucows’ core Internet domain name business is flat and poised for further decline. The business has become vastly more competitive and commoditized, so customers buy principally on price.more...
Glu Mobile: Kim K Trips, New Games Disappoint, Key Insider Sells Amid Crazy P/E
Her stilettos flashing and iPhone snapping selfies, Kim Kardashian is racing out in front, with Deer Hunter close behind, and Racing Rivals bringing up the rear. But wait … No, no. It can’t be…Yes, yes, America’s dashing diva is slowing now as, in one fell swoop, she whips out a tiny mirror, smears pink lip plumper on that famous kisser and checks out the scenery behind her. Slowing, slowing, slowing. Stumble…
In the wacky world of mobile game making, Glu Mobile (NASDAQ: GLUU) is in a constant mad dash for gamers’ hearts and fingertips.
But Glu’s top three games “Kim Kardashian: Hollywood,” “Deer Hunter 2014,” and “Racing Rivals” are now declining, according to App Annie data.
And that decline is just the first warning flag amid a mile-long parade of red flags viciously snapping at Glu.
The company has not responded to TheStreetSweeper’s request for comment, but investors may find other viewpoints here.
Meanwhile, here’s a quick executive summary:
*Hopped up on hype. Glu Mobile’s stock is up on hoped-for hits and the company’s enthusiastic guidance.
*Declining stars. Glu’s three top games drive the bulk of past and current revenues. But they are in a slow decline.
*Recent games disappoint. Games launched so far this year are turning in disappointing numbers. And games currently in soft launch are getting surprisingly poor rankings, too.
*Key insider selling. A director who was an original investor also manages a fund that is now dumping the majority of its shares in Glu.
*Crazy P/E: Glu’s price-to-forward earnings is an outlandish 74, while the P/E is about 20 for two competitors and the industry as a whole.
*Should guide lower: Overall, we expect Glu leaders will need to lower sales guidance for the third quarter and potentially the entire year.
Indeed, we believe Glu shares are poised to decline faster than a broken stiletto can drop any dashing diva. Here’s why:
*Current Stars Declinemore...
La Jolla Pharmaceutical: Lost Opportunity, Insider Questions Should Chop Valuation By Well Over Half
*The stock primarily owes its price to enthusiasm over insider buying. However, that insider’s large block trade orders sparked a market manipulation investigation that led to his broker being sanctioned, temporarily losing his license and paying tens of thousands in fines.
*Though La Jolla had to shelve its most promising drug candidate, analysts haven’t revised price targets to reflect the massive decline in market opportunity.
*With La Jolla’s history of missed, terrible earnings, even bullish analysts anticipate horrible earnings into the foreseeable future.
*With little real institutional interest, anyway, more shares recently have been sold out than new positions added.
*Our calculations suggest the remaining market opportunity for La Jolla is a fraction of analysts’ projections.more...
Kornit Digital Update: Top Competitor Acquisition Signals KRNT's Vast Risks, Overvaluation
TheStreetSweeper alerts investors on the very latest negative event subsequent to our Monday report on the massive risks facing Kornit Digital (KRNT) - an event that justifies a stock price decline to below $5 per share.
A top competitor, Italy-based Reggiani has been acquired by Electronics for Imaging for about $84.2 million, plus ~$56.2 million over 30 months of milestone achievements.
The deal presents two big negative implications for Israeli inkjet printing company, Kornit. These are particularly worrisome just as the company tries to make the critical expansion from the T-shirt makers’ market into the roll-to-roll market. Roll-to-roll printers allow images to be printed on fabrics that are then sewn into garments, wallpaper, furniture coverings, etc.
First, Reggiani, already a top rival whose sales jumped 61 percent between 2012 and 2013 to ~$76 million, will likely become a roll-to-roll gorilla.
The acquisition by Electronics for Imaging (EFII) means the rebranded EFI Reggiani will be able to use the money and advanced distribution channels afforded by EFII. So it will negatively impact Kornit’s future potential – as Kornit tries to get its commercial roll-to-roll printer launched in about 18 months.
Second, this deal should have a downward effect on Kornit’s valuation today.
The deal means EFII is unwilling to pay an acquisition anything close to Kornit’s current ~6 times revenue and ~50 times EBITDA.
Indeed, EFII has shown that it’s willing to pony up only 1.8 times revenue and 7-12 times EBITDA. That means, it would pay no more than about $56 million to $127 million for Kornit, which equals $1.88 to $4.26 per sharemore...
Kornit Digital: Inkjet Printer Company Attempting To Trade At 3-D Printer Valuation, Riddled With Risk
Israeli printer company Kornit Digital (KRNT), swung into the inkjet printing jungle as a $16 million acquisition that went public last April. In the shifting eyes of the market, it grew up almost overnight into a nearly half-a-billion dollar beast.
But, with fangs bared, a snarling threat lies in wait for Kornit shareholders. The market has been led to misunderstand Kornit’s true business.
Kornit is a small manufacturer of inkjet printers used to print images and designs directly onto T-shirts and other garments.
Yet the market has slapped a ~$400 million valuation on this small inkjet printer company that last quarter posted just $17.6 million revenue and a $200,000 net loss. Why?
“You wouldn’t be able to IPO a $16 million company at huge valuation if you didn’t throw out some nice buzz words,” an analyst told TheStreetSweeper.
The buzz word is 3-D printers. Some analysts have compared Kornit with 3-D printer companies, prompting widespread misunderstanding and baseless exuberance about Kornit’s potential.
So, while investors may find other viewpoints here, below is an executive summary of why we think Kornit is one of the worst creatures in the jungle. Then we’ll move on to our key points.
*Misunderstood Hype - Due to analyst hype, the market erroneously believes inkjet printer Kornit is a 3-D printing company and has assigned a correspondingly ridiculous valuation – a valuation we believe Kornit cannot possibly grow into.
*Not 3-D - Using a commercially available printer head and boasting just ~7 patents, Kornit printers lack the “specialness” to possibly justify any comparison to 3-D printers.
*Overvalued - Kornit trades at an outlandish 50 times EBITDA and ~68 times earnings; both are close to 10 times pricier than comparable companies.
*Killer Competitors - Gorilla rivals such as Aeoon, Brothers, Epson and many others are stomping Kornit in the direct-to-garment area that serves custom T-shirt companies. Kornit’s signature “Breeze” printer costs twice as much as a top rival’s and prints on about the same number of T-shirts per hour.
*Late To Market - Kornit wants to pursue roll-to-roll (R2R) printing on fabric, but four years after introducing its Allegro solution, the commercial launch may still be 18 months out. Worse, a sole supplier issue could threaten both direct-to-garment and roll-to-roll products. Meanwhile, Dover, Durst and Konica Minolta are dominating this area.
*Dilution Appears Imminent - Kornit will likely lose significant ground even before the September stock lockup expiration, potentially unleashing millions of shares onto the market. See “Final Bone-Crusher: Stock Overhang” below to get the overhang details. A controlling shareholder could cash in essentially a pennies-on-the-dollar transaction at current stock prices.
*$6 Target Price – At ~$13 a share, creating a $387 million market cap for a company with a pathetic $4.6 million in the bank, it only makes sense for Kornit to fill its money chest with capital raised now. So we wouldn’t be surprised to see the stock drop off the cliff to $6 a share. And even that is extremely generous.more...
Uranium Energy Corporation: The Bad News Buried In The Recent Sale
Uranium mining company Uranium Energy Corp (UEC) is digging all the love it’s getting from the market right now. But after we mined into company documents, we couldn’t resist humming the cowboy song, “You Done Tore Out My Heart and Stomped That Sucker Flat.”
Uranium Energy looks ready to do just that to investors.
The company has not responded to TheStreetSweeper’s request for comment but investors may find other viewpoints here. Meanwhile, we’ve leaned on some ol’ country songs to help us croon out the risks.
*”If The Jukebox Took Teardrops,” Or Market’s Feeling The Pain
While UEC stock is up, the company’s peers are all down.
The reason the sector’s performance remains so terrible is because uranium spot prices of about $36 are at a five-year low, as shown below.more...
TheStreetSweeper Quick Hit: Northwest Biotherapeutics (NWBO) Desperation
TheStreetSweeper issues an alert about a desperate situation occurring at Northwest Biotherapeutics (NWBO). The biotech’s recently hyped effort – early Phase 1 data for its experimental cancer tumor injectable shows 27 of 39 patients remain alive after up to 18 months after injection - comes at a heavy, perhaps even fatal cost.
NWBO retained the services of Cognate BioServices to conduct clinical trials and associated work. Now, Cognate has hit up NWBO for $8.2 million and the biotech is coming up short. It still owed Cognate $5.8 million as of March 31.
This is just the latest in a series of stunning negatives, including:
*1. Cash has plummeted to just $3.2 million.
*2. Cash burn hit ~$17 million.
*3. Working capital deficit soared to $86 million.
*4. CEO Linda F. Powers’ company bio doesn’t mention it, but Ms. Powers was Enron’s senior vice president for global operations, though she wasn’t implicated in the scandal. She controls NWBO’s major funding sources Toucan Capital and Toucan Partners, holders of ~4% of outstanding shares.
*5. Expensive lawsuits have gone in NWBO’s favor and against it, such as a class-action securities lawsuit alleging the company issued misleading press releases. NWBO agreed to settle for $1 million. NWBO also received demand letters from shareholders seeking access to books with the intention of investigating possible mismanagement and breaches of fiduciary duty.
*6. Market value is $760 million. With just 12 full-time employees, the company last year spent $85.6 million in R&D and $16.9 million in general and administrative.
*8. Serious doubts exist about NWBO’s survival, according to its SEC filings:
“Because of recurring operating losses, net operating cash flow deficits, and an accumulated deficit there is substantial doubt about the Company’s ability to continue as a going concern.”
*9. NWBO’s 10-K filing warns: “We will need to raise substantial funds, on an ongoing basis…”
Indeed, it adds: “Any financing will involve issuance of equity and/or debt, and such issuances will be dilutive to existing shareholders.”
*10. Operating losses exceeded its abysmal revenue – a $194,000 research grant - by a factor of 117:more...
eMagin: Imagine This Stock Collapsing Below $1
Looking for all the world like a virtual reality gamer, eMagin Corp. (EMAN) has been virtually running in place ever since the introduction of its first microdisplay 14 long years ago.
And now one of the OLED (organic light emitting diode) display maker’s greatest rivals has reached across and hit eMagin’s reverse button … stealing a Navy contract right out from under its nose.
This – and additional adversity – will likely squash the almost flat revenue anticipated for 2015. Though EMAN just turned a slight profit after seven straight quarters of losses, these challenges suggest it may have a tough time hanging onto that oh-so-tenuous profitability.
Investors may check out other viewpoints here, which include bullish points such as EMAN will gain government contracts, improve compared to rivals and find growth opportunities.
Meanwhile, we’ll hit the top reasons EMAN’s virtual shoot-out will likely end badly. We’re looking for the stock price to drop below $1 because:
*1. Yowza! Trading At 100 Times Earnings?!?
The most bullish analyst estimates EMAN’s earnings will reach 3 cents per share for the year. So that means investors are paying an astronomical 100 times more than the earnings they expect to receive.
That’s a lot considering the fact that EMAN is a little OLED microdisplay maker with declining revenue - not one of the highflying biotechs working on a cure for cancer.
We’ll save the multiple we’re generously projecting for EMAN for the conclusion of this article.more...
Cracking The Code On DigiMarc (DMRC): Deteriorating Business Will Continue To Decline - Part 2
Barcode technology company Digimarc faces even more challenges beyond those detailed in TheStreetSweeper’s part 1, including:
*Digimarc’s Discover remains undiscovered
Digimarc hopes it can advance its Digimarc Discover – designed to combine “invisible” barcode technology and media experiences - sufficiently to fill in the gaps left by declining revenue from major customers such as Intellectual Ventures, whose license payments have ended and consulting fees will end this year. But that appears unlikely.
Why? There are three major reasons.
*First, most reviewers had problems with the quality of Digimarc Discover.
In fact, most of the 986 Appszoom reviews of the product were negative, giving Discover a measly ranking of 1 ½ stars:
Meanwhile, the majority of reviewers gave the product 1 star out of 5 stars at play.google.com, though it did make a total of 2.9 stars.
Photographer, webmaster and gear reviewer Ken Rockwell is not impressed with Digimarc Discover, either. He said the product degrades images, requires larger compressed JPEG files, is not invisible and offers many disadvantages.
*Turning the pack
Second, groups such as product manufacturers, scanner makers, package printers and retailers have to be convinced to switch from their current barcode.
Manufacturers would face additional costs to switch to a different barcode. Retailers who would like to use the Digimarc barcode would face the costly, time-consuming effort of adding camera capabilities to all scanners, as well as expensive fees.
This chart breaks down the cost of Digimarc’s $350 setup fee per code and $50 per year maintenance fee with the UPC barcode costs:
# of items needing UPC barcode
Initial fee $
Yearly fee $
# of items needing DigiMarc barcode
Initial fee $
Yearly fee $
Up to 10,000
Up to 100,000
Up to 100,000
So, understandably, retailers would balk at plunking down as much as 3,000 times more for Digimarc’s barcode than for the current low-cost, perfectly capable barcode.
*Walmart failure offers sad model
Third, Walmart’s infamous barcode replacement attempt serves as a model of disappointment.more...
Cracking The Code On DigiMarc (DMRC): Deteriorating Business Will Continue To Decline
CEO Bruce Davis even got a raise in November, bringing his base salary to $600,000.
Include Mr. Davis’s stock awards and 401-K contributions, and it all adds up to $3.39 million.
Not only that but, if and when his job ends, Mr. Davis will receive at least $600,000 yearly for two years after termination.
Meanwhile, three other top executives just had another $260,000 worth of stock apiece added to their compensation packages, bringing their total compensation to nearly $800,000 apiece.
And, just for attending up to five board meetings a year, Digimarc’s four directors each received compensation in the $150,000 range.
Ultimately, compensation for executives and directors in 2014 consumed a jaw-dropping 26 percent of total revenue.
While investors may read exclusively bullish viewpoints here on the Beaverton, Oregon “invisible” barcode maker, we’ll hit on other concerns expected to ultimately send this highflyer crashing back to reality.
*Insiders yell “Sell!”more...
PlasmaTech Biopharmaceuticals: Hyped Up ... Old "News" ... Going Down
PlasmaTech Biopharmaceuticals (PTBI) rocketed on “news” that the FDA granted orphan drug status to its newly acquired gene therapy products.
But PTBI’s announcement is simply hype churned out to raise the stock price … which is exactly what it did.
Why would we claim this is nothing more than a stock-hyping promotion?
The products had already received orphan drug designations – and been announced.
One full year ago.
Here’s the headline:
“Abeona Therapeutics Receives U.S. Orphan Drug Designations for treatment of Sanfilippo Syndromes A and B”
PTBI announced May 6 that it would acquire Abeona, along with the acquisition’s therapy for Sanfilippo Syndromes A and B. Two weeks later, PTBI issued its press release making it sound as if it had just received the US Food and Drug Administration designation for the therapies, here.
PTBI said FDA granted the designation for PTBI’s “lead product candidates for the treatment of Sanfilippo Syndromes A and B.” Orphan drug designation makes it easier to gain marketing approval to treat a rare medical condition or “orphan disease.”
PTBI’s new CEO, Tim Miller, Abeona’s former CEO, is quoted in both the current and the year-old release.
As for the Rare Pediatric Disease designation that PTBI says it has also received, a PTBI corporate presentation suggests Abeona had already received the designation. Spokeswoman Sandy Walsh said the FDA does not disclose the names of companies that request or receive this type of designation.
But this is just the beginning of a long list of issues that we believe will soon ground the PTBI rocket.
While investors may find other viewpoints here, we’ll tick off additional reasons we believe this stock is on the verge of crashing back to earth.
*Promotions: “There’s no such thing as bad publicity.” Or is there?
Seeking Alpha also has published two PTBI articles in the last few weeks, both fairly bullish and written by the same author.
On May 18, contributor to TheStreet.com touted the Soros investment and the initiation on a “buy” by H.C. Wainwright.
DLS Research, owner of SmithOnStocks, has also promoted PTBI, when the pharmaceutical company was called Access Pharmaceuticals. Investors may check here, where a Seeking Alpha author took DLS to task.
And HotStocked is yet another business that has trumpeted PTBI.
Investing in companies that must rely on stock promoters to get more eyeballs on their stock is risky business. Other company investors have taken the advice of promoters, such as Jonathan Lebed. TheStreetSweeper wrote about the Lebed-promoted Jive in 2012, which ended in disaster for virtually everyone but the Lebed team (JIVE, then ~$24, now ~$5.55).
*Bad News: Shark Tank’s Mr. Wonderful says, “It’s all about the moneeeey!”
PTBI last year increased cash by cutting expenses such as its lifeblood - research and development – and diluting shareholders’ stock. Its accounts payable rose and revenue collapsed.
Here are more details:
Dec. 31, 2014
Dec. 31, 2013
$ .9 m
$ 1.9 m
$ .9 m
Research & Dev.
$ .3 m
$ .9 m
(Source: SEC filings)
PTBI blames losses on R&D:
“Our losses have resulted principally from costs incurred in research and development activities …and from associated administrative costs.”
Then PTBI turned around and noted a few pages later that R&D dropped more than half-a-million bucks!
Indeed, those “associated administrative costs” really mean stock-based compensation jumped astronomically.
In fact, stock-based compensation nearly tripled.
For their hand in running the company that’s now lost $298 million, PTBI folks received $1.3 million in stock-based compensation.
Dec. 31, 2014
Dec. 31, 2013
Wowser! The deeper the hole, the better the pay.
Full compensation is hard to track in PTBI’s game of executive musical chairs but new CEO Miller will receive $350,000 yearly, along with a possible bonus and stock options for 400,000 shares worth around $3.5 million.
Another big player who has sat in several chairs and handled at least five of PTBI’s private stock offerings through his SCO Securities, is Steven Rouhandeh, executive chairman.
PTBI’s filings note this about SCO entities linked to Mr. Rouhandeh: “During 2014 and 2013, SCO and affiliates charged $300,000 each year in investor relations fees.”
Mr. Rouhandeh’s stock option awards for 2014? Those alone were worth $523,000.
In fact, Mr. Rouhandeh and his SCO entities own over 14 million shares, exceeding a whopping 65 percent ownership.
*What About Soros?
But that stock cost Soros a fraction of what today’s retail investor is paying. The Soros fund’s increased position works out to a price of ~$3 per share for one block of 250,000 shares and ~$0.93 per share for the second block, according to the fund’s SEC filing.
And the position in PTBI is extremely small.
The Soros fund lists stock held in ~230 companies in the last quarter, records show. The fund includes many positions of those other companies of 10 million or more shares accumulated in that timeframe.
Is Soros still holding a position in PTBI now that the stock is about three times or more than the purchase price?
Fund managers have not yet responded to TheStreetSweeper’s request for a comment. But how long Soros might hold onto PTBI shares is a burning question, particularly considering the current price and all the institutional types selling PTBI.
*Top Investors Dump PTBI Stock
Three out of PTBI’s five biggest institutional investors have begun dumping its stock. These are Oracle, Sabby and Deerfield.
A total of seven institutional holders have whittled away at their holdings. PTBI’s biggest institutional investor, Oracle, has axed its shares to nearly half the original number. Two other institutions, Equitec and Messner & Smith, have sold out.more...
InterCloud Systems: Form D, Other Stormy Issues Threaten This Non-Cloud Company
InterCloud Systems (ICLD) stock blew through low-hanging clouds on a recent small contract award and today’s announcement of an effort to improve clients’ experience.
But InterCloud is in such dire financial straits that top executives and directors just filed notice for the sale of $3 million in stock.
And that is just the most recent of numerous stormy issues promising to dissipate InterCloud’s stock and leave stockholders drenched without an umbrella in sight.
Here are some bullish viewpoints for investors to consider. Meanwhile, below are the top cloud-busters that make us hate this stock:
*Reality Check Number 1: New Form D Filing, Horrible Financials
InterCloud’s CEO, President, Chief Accounting Officer, Chief Financial Officer and three directors signed off this week on the newest stock offering of $3 million through Aegis Capital. Disclosed under Form D, the first date of sale of the stock occurred May 14.
This may be just the beginning of such efforts for InterCloud. The company’s net income plummeted 200 percent last quarter versus a year ago. So net income dropped from $10.4 million to $-10.3 million.
Indeed, the company’s income, EBITDA and other metrics fall well below competitors and the industry as a whole, as shown here.
The company’s history of incredibly bad earnings and earnings misses, sometimes over 1000 percent, is shown here and below:
(Source: Yahoo Finance)
*Reality Check Number 2: History Of Loan Defaults; Massive Maturing, Related-Party Debt.more...
Chanticleer Holdings (HOTR): Turning Down The Fire
Chanticleer Holdings (HOTR) has recently been scorching hot. Yet its business plan is so cold, it could have frozen the raunchy wit right off legendary sex symbol Mae West.
But let’s assume she would have fluttered her eyelashes, patted a blond wave and recovered quickly enough to reveal the secrets of the North Carolina company that owns 46 company-owned and franchise locations, including 13 Hooters, six American Burger Co. restaurants, plus seven Just Fresh and 20 BGR locations.
We’ll let Mae and other voluptuous sirens help unveil some risks slinking up on HOTR.
*HOTR’s Nothing Without You, Seeking Alpha.
“Plastic surgeons are always making mountains out of molehills,” Dolly Parton once said. When it comes to HOTR, just substitute “Seeking Alpha authors” for “plastic surgeons” and you get the idea.
In an interview with the chief executive published April 16, for example, a Seeking Alpha author prompted CEO Mike Pruitt to hype HOTR’s far-from-beautiful financials this way:
“When profitability is reached, what is your philosophy on use of cash? Returned via cash dividends or buybacks, or 100% retained for possible future acquisitions? When do you expect the company to be in a position to return cash to shareholders?”
Really? Profitability? Following year after year of losses, now exceeding $21 million? Mr. Pruitt replied:more...
Clean Diesel Technologies: Burning Cash, Emitting Spotted History and Financials
If a company’s business is so flimsy that optimistic analysts must resort to commenting on the company’s “body language” for good results, you know you’re in for a ride.
But if you dare look past Clean Diesel Technologies’ (CDTI) body language into the financials, rapidly dying legacy products, the emissions funding problems, lost tax credits, fleeing CFO, historical allegations of behavior believed detrimental to shareholders validated by federal regulators’ orders – and SEC charges against a CDTI promoter – you know it has all the markings of one short, unforgettable, miserable ride.
CDTI manufactures and distributes emission control systems and products for the light-duty vehicle and heavy-duty diesel market. The bull thesis contends the company will make progress in transforming its business and will make commercial strides with its DuraFit offering. Roth Capital, which notes it expects to receive or intends to seek business with CDTI in the next three months, reiterated its “buy” rating in a research report sent to investors Wednesday morning. With the stock sitting at about $2.17, Roth set a $2.50 price target.
Investors should check out other viewpoints here while we describe our concerns about CDTI and why we think the stock price should collapse.
Investors may see in the table below that CDTI’s financial picture worsened in all three important areas:more...
Gevo: Cash Issues Resemble Another Big Loser, Dilution Pro -- Viggle
TheStreetSweeper issues a Gevo (GEVO) Quick Hit.
Just a month after Gevo’s board approved the desperate 1-to-15 reverse stock split that pushed the stock from ~$0.18 to ~$2, Gevo may be primed for a stock offering.
The stock is rallying today, yet the renewable fuels company is money-starved with only $4.4 million in cash. As it burns through about $10 million per quarter, it may have problems meeting its financial obligations.
This looks like another Viggle (VGGL) situation. Viggle, too, faces massive debt, low cash and going concern issues. We tweeted a VGGL update on Monday. See below:
“Troubling $VGGL rally on earnings! Cash dropped to $715,000. Burns ~$6m/Q, now needs $19m over current cash. We’re short.”
Sure enough, today the company filed a registration statement for $40-million of stock. That stock is down as much as ~30 percent since Monday.
We’re feeling a sense of déjà vu.
Gevo just reported a net loss of $7.3 million and accumulated losses of $310.6 million, and, while it anticipates $6 million in proceeds from warrants, it’s feeling the pressure of interest payments for $26 million in debt coming up in 2017 and $24.9 million in 2022.more...
QuinStreet: A Wreck Right Around The Corner
One minute, QuinStreet (NASDAQ:QNST) was merrily redirecting traffic from Google searches and picking up millions along the way in exchange for generating leads.
The next minute, two trucks flew around the corner, with President Obama at the wheel of one and Google at the other. Wham!
Once investors understand the true impact of that double-whammy, we think they'll agree that QuinStreet's business model looks like a beat-up, old jalopy. We'll explain why below but investors should also take a look at opposing viewpoints here.
*Losing customers: A flick of President Obama's pen and shuttered colleges
QuinStreet gets paid for gathering information when people type in something like "online college degree," or "credit cards," or "cheap car insurance," and then generating online sales leads for for-profit schools, credit card companies and auto insurance companies.
But QuinStreet's Education division is clearly taking several huge hits - hits that promise to thwart future revenue in this area.
For example, President Obama veered into QuinStreet's business with his plan for free community college.
This plan would damage QuinStreet's for-profit education customer base going forward because many of the people who might appreciate the flexibility of a for-profit college would enroll in community college if it became free.
Just as ominously, federal and state regulators are cracking down on QuinStreet's for-profit higher education customer. A US Senate committee revealed a disturbing investigation into for-profit education. And attorney generals across the country have been investigating these colleges' "dubious practices."
With $6 billion in federal student loans and grants, Corinthian was a significant client for QuinStreet. Its loss was not reflected in QuinStreet's last earnings.
Corinthian proved to be the canary in the for-profit college mine, signaling the intensifying implosion of the industry. Along with Corinthian, Career Education Corp. and Education Management Corp. fell beneath federal regulators' crackdown against colleges allegedly taking advantage of low income students and hitting them with debt. Regulators have left behind massive campuses closings, Education Management's delisting itself from Nasdaq and a loss of nearly $8 billion in market valuation.more...
Clean Energy Fuels: The Dirty Truth
That horrifying noise assaulting investors’ ears is the sound of Clean Energy Fuels (CLNE) braking and swerving in the middle of the highway.
TheStreetSweeper is convinced it’s time to get out of Clean’s path while we still can.
Enamored with clean energy, investors found it easy to buy into Clean on fourth quarter results showing a bump in revenue. At first we, too, were almost charmed by the provider of natural gas – compressed (CNG) and liquefied (LNG) – for long-haul trucks, buses, taxis, etc.
But when we broke out our toolbox, we discovered a wreck that will remain too banged up to make the long haul. Investors may find other viewpoints here, as we highlight the top risks poised to run down Clean Energy shareholders.
*1. Look under the hood: financials
First, the bump in revenue to $132 million wasn’t really the outperformance many thought. Check page 16 of its federal filing and note where $28.4 million of revenue came from: “federal fuel tax credits” which “expired on December 31, 2014.” Plus, another $12 million came from another one-time gain – the sale of Clean’s interest in a Dallas biomethane plant.
Second, gross profit per gallon declined to $0.26. That’s 2 cents less than the quarter before and 5 cents less than the prior year.
Gross profit was expected to be $0.29, according to Piper Jaffray’s Alexander Potter and Winnie Dong – who called a $3.25 price target on Sunday, March 1, 2015. Clean had just closed at $6.01.
“We are growing increasingly skeptical that this key metric can/will eventually rise,” analysts wrote of the gross profit.
Third, Clean’s adjusted EBITDA was not positive. It was actually negative at -$3.2 million.
Clean actually had a loss of $0.01, while firms like Raymond James were looking for positive earnings of $0.05.
The bull case accounts for a relatively strong balance sheet and that Clean should be able to reach positive cash flow.
But we strongly believe Clean’s financials should have sent investors racing …. For the exits.
*2. LNG bet goes up in smoke. Clean Energy has placed a bet that long-haul trucking would easily switch from diesel to liquefied natural gas. But that has not happened.more...
CHOP: Steel Company’s Shares Ready For The Chopping Block
The future of a Chinese steel company teeters atop a pile of porcelain artwork.
Those fragile pieces are the latest elements straining to prop up China Gerui Advanced Materials Group (CHOP).
The company says it intends to eventually sell porcelain pieces in hopes of saving the steel business.
But the hammers are raised and threaten to shatter CHOP’s last-ditch efforts.
TheStreetSweeper highlights the cash burn, business shift, lawsuit allegations, and other issues that we believe make CHOP shares worth a couple of quarters or maybe even, as one analyst said, “zero.”
Meanwhile, investors may find other viewpoints here about the Chinese cold-rolled steel manufacturer. The company’s thin steel product – sometimes only as wide as a human hair – is sold to the Chinese food packaging, electrical appliances and construction materials industries.
CHOP has not yet responded to TheStreetSweeper’s request for an interview.
*Virtually no cash left
CHOP has been burning through a mountain of cash – about $240 million in three quarters or $80 million per quarter - the company now reports just $2.3 million of unrestricted cash and $50 million in restricted cash remaining. At the current unbelievable burn rate, CHOP must find more operating money soon.
*History of massive revenue decline, debt problems and recent cash-poor position
CHOP shares suddenly rocketed from 70 cents apiece to about $4, in opposition to the direction of the company’s cash and revenue.
The company’s revenue has been spiraling downward for some time, as shown in the company’s Securities and Exchange Commission filings:
Filed Jan. 6, 2015:
Third Quarter 2014 Results Revenue decreased 90.0% to $3.1 million in the third quarter of 2014 from $30.9 million in the third quarter of 2013. Nine Months 2014 Results Revenue was $62.2 million in the first nine months of 2014 compared with $119.6 million in the first nine months of 2013…As of June 30, 2014, the Company had $3.0 million in unrestricted cash…
The company also posted a loss of $6 million in the third quarter. Noting its one-for-ten reverse stock split, the company blamed poor results on low steel prices, declining sales, credit problems, downtime of production lines, bank loan defaults and working capital shortages.
Filed Sept. 4, 2014:
Second Quarter Results Revenue decreased 24.1% to $32.7 million in the second quarter of 2014 from $43.1 million in the second quarter of 2013. Gross profit decreased 51.8% to $1.7 million in the second quarter of 2014 from $3.5 million in the same quarter of 2013.
Gross margin was 5.2% … Operating loss was $0.6 million…Net loss was $1.4 million.
Filed May 20, 2014:
First Quarter Results Revenue decreased 42.0% to $26.4 million in the first quarter of 2014 from $45.6 million in the first quarter of 2013. Gross profit decreased 123.9% to ($1.2 million) in the first quarter of 2014 from $5.2 million in the same quarter of 2013.
The chart from Bloomberg below, presents a vivid image of CHOP’s perilous cash position, plummeting from about $200 million or more in the second quarter of 2012 through the first quarter last year, down to a few million in the second and third quarters of 2014:more...
Inuvo: Top Reasons This Stock Should Dive
Arkansas-based Inuvo (INUV) is working in a business that elicits the same level of enthusiasm as, say, receiving a dinnertime call from a telemarketer or getting a visit from a solicitor peddling a coat-full of fake Rolex watches.
INUV and its peers have seen some doors slammed on their businesses previously. And this Internet marketing and technology company could see many more slammed doors in the near future.
Let’s look at INUV’s background and then get right to the top reasons TheStreetSweeper is watching for a decline in INUV’s stock – likely below the $2 level.
Investors should also take a look at other viewpoints on INUV here.
Recent hype that Google and Yahoo have renewed deals with INUV are actually quite routine. Virtually all companies in this space have a relationship with the two Internet search providers, though these relationships seem to change rather often.
A big change occurred a few years ago in the toolbar business that was making millions for INUV and others. The Internet version of the solicitor banging on the door at dinnertime, these toolbars automatically installed when you downloaded a video. A search in the toolbar would be an INUV search, powered by Yahoo or Google. And the revenues from ad clicks were shared by the toolbar vendor and the search company.
But Google made a small change that drastically dropped toolbar downloads. Bye-bye searches with random Kim Kardashian rear-end pix popping up. Bye-bye key market opportunity for INUV and peers.
So INUV transitioned out of toolbar downloads. The company now focuses on the digital publishing business and building ads for other web publishers.
CEO Richard Howe told TheStreetSweeper that INUV works at keeping fresh, interesting content in its properties focusing on health, finance, careers, travel and local interests.
“On the ad tech side, the key there is really to build new and better ad units,” he said. “These would be ads that you see on the website when you go visit the website. You may think they’re ads that just sit there and don’t do anything, but the ones that perform the best have some sort of intelligence behind them.”
A long-time analyst in this space scoffed, “At the end of the day, these are banner ads.”
It’s such a fast-moving space that it even sometimes gets ahead of INUV. In one slightly awkward moment during the interview, we wondered about the “TastyNewDishes.com” that INUV promoted in its February corporate presentation, on page 8, here. We couldn’t find it in our Internet search.
“Sometimes publishers leave, right? So we may … need to revise the presentation,” said Mr. Howe, noting someone else mentioned the same thing this week. “I’ve got to go look into why.”
*Stock offering? CEO says, “It’s certainly something that our board is now talking about.”
Mr. Howe told TheStreetSweeper that a stock offering has not been “something we have contemplated up until now.”
He said the board hadn’t considered a raise before because they didn’t want to cause dilution since it wasn’t necessary.
“It’s not like we need the money,” he added.
“Now that the stock price is rising, while we haven’t decided to do an equity raise, it’s certainly something that our board is now talking about,” said Mr. Howe.
He wouldn’t elaborate, of course, on exactly how soon a stock offering might happen.
“Whether that means we’ll do it or not, is a whole other story. And, like I said, we’re certainly not in any hurry to do it,” added Mr. Howe.
*Striking decline in INUV’s website traffic.
The number of unique visitors, so vital to growth for companies like INUV, has shown a stunning decline of about 50 percent for INUV over a year. See the chart below, measuring the traffic to INUV’s http://health.alot.com/website, according to the “Nielsen of website traffic,” Compete.com:more...
UniPixel: This Steamroller Is About To Squash Investors
Many of today’s investors, one sage noted, seem to be picking up pennies in front of a steamroller.
Specifically, UniPixel (UNXL) is gunning its engine and we think that big machine is just about to flatten unfortunate investors - again.
The Woodlands, Texas company makes touchscreen film for electronic devices and a hard coat protective film for various uses. The stock just recently emerged from a two-year-long drop from about $40 to the recent ~$6.70.
The initial run-up two years ago escalated on news of a UniPixel-Kodak partnership announcement that April, targeting year-end 2013 to begin reeling out rolls of film to make touchscreens respond to touch. This seemed to validate the technology. Never mind that Kodak and Kingsbury Corp. released a very similar announcement two months later about their partnership that, apparently unlike the UniPixel deal, has landed a sale. And no one knew then that the UniPixel-Kodak roll-out would hit multiple delays and not happen until … well, everyone’s still waiting two years later. Regardless, the stock lingered in the $30-$40 range.
Later in 2013, the stock began cratering amid a pile of reports suggesting problems including excessive promotions, misallocation of capital, repeated delays, heavy competition, disappointing technology, questionable insiders (see a bull’s interesting response here), along with class-action lawsuits, including one later dismissed and others settled.
And it was all capped off by the Securities and Exchange Commission issuing subpoenas on Nov. 19, 2013 in connection with some UniPixel sensor agreements, hurtling the stock down to around $12 and gradually trailing downward.
But recently, the market has forgotten about UniPixel’s problems and its zero revenue in each quarter of 2014 and its missed earnings. Indeed, investors sent the stock rocketing to about $6 on hopes the company may be able this quarter to begin commercial production of a hard-coat resin and a sensor product.
TheStreetSweeper has not yet received a response to requests to UniPixil for an interview.
Check out other viewpoints here and we’ll lay out the top reasons we think it’s time to drop the pennies and run like crazy.
Heron Therapeutics: Rise of the Phoenix, or Fall of the Dodo Bird?
Heron Therapeutics (HRTX), a tiny drug company with no approved product and nothing but losses to report, may be just about ready to drop eye-popping news on investors.
“At some point in time, we’ll probably do a small equity raise to top off the tank,” CEO Barry Quart told TheStreetSweeper.
“I would not anticipate the raise being any substantially different than the raises we have done in the last year or two,” he said in a phone interview out of his San Diego office.
“Those were … around $60 million or so,” he said, adding the raise might wait until data for a post-operation pain program is released this summer.
Asked why he has been selling Heron stock - $130,000 worth in the past few weeks - he said that has nothing to do with his perception of the company’s future.
Though his compensation exceeds $8 million, the chief executive said he simply needed to pay for two upcoming weddings.
Those stock sales, along with sales by another officer, have occurred amid a stock price pop of some 40 percent since January. Eager, biotech-fevered investors have been looking for study results for Heron’s top candidate, Sustol, plus eventual FDA approval to begin marketing, along with more news of its post-operative pain gel.
But Mr. Quart said investors may simply be just starting to pay attention to the company.
“Heron is the rebranding of a company that had a long and checkered past … A.P. Pharma,” he said. “I think the story had grown old and there wasn’t a lot of interest in our lead product - not a lot of significant, broad interest - in our lead product, which is for chemotherapy-induced nausea and vomiting.”
Will the company continue its Phoenix-like rise? Or will Heron become tomorrow’s biotech dodo bird?
While investors may find various viewpoints here, we’ll lay out some key concerns surrounding this company that remains unprofitable – after 32 years of trying.
*Heron’s Food and Drug Administration applications fail, projected launches fail, but dilutive stock offerings are common.
*Not only is the CEO selling stock, so is a senior vice president. The two both sold shares in March, significantly … before release of study results and before resubmission of its new drug application to the FDA.
*Risk to potential sales includes heavy competition, small market and unfortunate timing as the leading drug goes generic.
*The $420 million market cap reflects full success. Should Heron actually succeed at virtually any level, we believe there’s little upside remaining.
Here are the details:
*History of multiple FDA applications, projected “launches.” All failed.
Redwood City, Calif.-based Heron has been trying for years to get the US Food and Drug Administration to approve Sustol (APF530) under a new drug application or NDA that would allow the drug to be sold. It has tried since May 2009.
Heron’s application for its nausea and vomiting drug got its first denial letter or “complete response letter” in March 2010, sending the stock down 54 percent.
The FDA’s “CLR” to Heron (then A.P. Pharma) pointed to major concerns in multiple areas, including the two-syringe system, manufacturing deficiencies found during inspections, and a need for reanalysis of efficacy data.
In March 2013, the agency once again rejected the APF530 (Sustol) application, citing many of the same issues the company had been told to address in 2010.
Heron has spent the past two years trying to address the concerns contained in the last FDA rejection letter.
And no one really knows whether Sustol will get yet another FDA rejection.
If it does, we can expect at least the level of investor backlash that the stock endured previously. On March 28, 2013, the stock collapsed to 52 cents, a 12 percent drop in premarket trading when the company disclosed the Sustol application denial. The chart shows the decline, adjusted for the stock split.more...
EBIX: Caught with Its Hand in the Cookie Jar
Editor’s Note: To simplify matters, TheStreetSweeper has provided links to many of the documents that it used to prepare this investigative report – along with the detailed instructions necessary to replicate its calculations and verify its claims – in a lengthy series of endnotes that appear at the bottom of this story.
Ebix (Nasdaq: EBIX) better learn how to control its appetite. The last time that the hungry rollup company raided the cookie jar, the firm may have finally pushed its luck a little bit too far.
After relying on a blatant accounting trick to artificially sweeten its fourth-quarter earnings – and then concealing the hefty gain that allowed it to beat profit estimates that it would have otherwise missed – Ebix left behind some rather incriminating evidence. In the formal 10-K report that it filed a few days after it pulled that brazen stunt, the company provided enough fresh clues to reveal (among other juicy secrets reserved for later stories) the following:
· Ebix added millions of dollars to its net income last year by impatiently reversing most of its reserves for potential “earn-out” payments to the very acquisition target responsible for the celebrated European contract that the company just won.
· Following its acquisition of two companies in the first half of 2014, Ebix swiftly reversed all of the potential earn-out bonus for the first and most of that for the second by the end of that same year. Ebix recognized at least a portion of the resulting decline in its earn-out liabilities as net income and may have aggressively booked far more generous gains before its recent acquisition targets ever got a legitimate chance to actually prove themselves.
· After reversing most of the reserves that it established for earn-out payments to many of the firms that it has purchased in recent years – without formally impairing any of the goodwill assigned to those companies – Ebix must have finally resigned itself to the inevitable. Since its goodwill balance increased by a smaller amount than the goodwill assigned to the firms that it purchased during the fourth quarter, Ebix clearly recognized some kind of write-down but apparently decided to bury that disturbing evidence.
Ebix ignored a request by TheStreetSweeper to quantify the reserves that it originally established for each one of the firms that it acquired over the past several years, along with any adjustments that it made to those contingent liabilities and any gains that it recorded as a result, in spite of the profound difference that earn-out reversals have repeatedly made in its financial results.
TubeMogul: It's All About The Numbers (And They Aren't Pretty)
New industry data on TubeMogul (TUBE) provides a brutal reality check for the digital video advertising company that has recently become a Wall Street darling.
This infatuation has given TubeMogul an optimistic $400 million market valuation. But that valuation is not supported by key industry factors defined by big-data analysis firm comScore.
The data on unique video views and ad videos viewed show that TubeMogul’s performance is falling behind the rest of the industry.
TubeMogul’s ad view traffic began its downhill slide in December, falling 9 percent. January ad views year-over-year dropped almost 21 percent in January and more than 16 percent in February.
In contrast, BrightRoll, a Yahoo division, enjoyed 116 percent growth YOY in December, 44 percent in January and 39 percent in February.
The trend for TubeMogul, then, has clearly been just the opposite of the industry in December, January and February.
See various viewpoints here, and the chart below. Our chart shows key comScore data. The data mashes month-by-month figures for Google, BrightRoll, AOL, LiveRail (Facebook acquisition), SpotXchange, Specific Media, Hulu, Tremor Video, Videology Inc. and TubeMogul going back as far as June 2009.more...
MicroVision: Why We Don’t See The Vision
MicroVision’s (MVIS) product and future still look stunningly microscopic, despite the big frenzy over an order for its tiny projector components.
MicroVision emerged about the time gasoline was $1 and the auto-film rewind Sure Shot cameras were the big thing.
Decades later, the eyeball idea has morphed into component modules for tiny projectors. And the share price morphed to ~$2.
It stayed in that range from the summer of 2013 until recently. Then the stock suddenly streaked to ~$4. Why?
MicroVision has landed a $14.5 million component order essentially confirmed to be from Sony.
But TheStreetSweeper contends a $14.5 million order is still not going to morph MicroVision’s $469 million loss into a profit.
Let’s look at the issues we believe are conspiring to pummel this stock back to that familiar $2 territory and below.
*First, the bull case.
The bull thesis applauds further development efforts with Sony that began in April 2013. The technology is validated through the March non-exclusive licensing agreement.
MicroVision began fulfilling $3.8 million in component orders for Sony near year’s end and will continue into 2015.
Bulls are lauding PicoP integration into some consumer products such as the Korean OEM Celluon, which is now selling products. Sometime in the second half of the year, they are expecting a smartphone product.
More revenue sources are needed as indicated by 4Q14 revenue/losses of $0.7 million and $0.08 loss/share, however. Wall Street expected $1.7 million and $0.08 loss.
Oppenheimer is estimating $20 million revenue in 2015 ($-0.04 loss). It estimates revenue dropping to $12 million in 2016 ($-0.20 loss).
Extrapolating from Oppenheimer’s estimates, it appears MicroVision might sell $9.5 million to Sony this year, but only $8.5 million in 2016 – which doesn’t sound like a growing market.
While Northland Securities has a “buy” on MicroVision (the report was unavailable), Oppenheimer said it prefers to remain sidelined until more revenue sources are secured.
Investors may find other viewpoints on MicroVision here.
*The entire projector market is tiny. The average sales price is declining.more...
CorMedix: Finishing Out Of The Money
CorMedix (CRMD) insiders are prancing in the post parade as they prepare to enter the race of a lifetime.
The apparent objective: Sell millions of shares of the New Jersey pharmaceutical company before word spreads about CorMedix’s wacky financial underpinnings, its primary product that a doctor termed of little more benefit than a good hand-washing, and auditors’ recently stated “substantial doubt” about its ability to continue operating.
Always out of the money, CorMedix is:
- Registering 2.45 million shares of stock for insiders who want to sell, diluting average stockholders’ shares.
- Ridden by an insider who has jockeyed at least six disastrous companies, including some devastated by unexpected negative U.S. trial results.
- Racing the same old tired horse – a U.S.-unapproved catheter lock system called Neutrolin, designed to cut dialysis patients’ infections. Competitors' clinical trials are already underway, some completed.
- Trading up on the misconceived notion that the company could be bought out.
“All of a sudden CorMedix became this day trader chew toy that they’re buying and moving around,” said a doctor who also manages a fund. “But it’s just the same … company it was four months ago.”
The company did not respond to our requests for comment. But investors may check out other viewpoints on CorMedix here.
Bull arguments are: Neutrolin’s potential in dialysis and non-dialysis markets is undervalued. Belief that a partnership could soon develop to aid CorMedix as it approaches Phase III trials to determine efficacy and safety. A recent distribution deal in the Middle East, where Saudi Arabia reports roughly 13,000 dialysis patients with catheters. Also, another estimated 1.6 million intensive care unit patients with catheters.
Now, pull on your racing silks and ride along as we chase down a company that is racing at breakneck speed toward the glue factory. This treacherous racetrack is piled high with the following red flags:
*Insiders Do A Little Horse-Trading. Guess Who’ll Lose - By More Than A Nose?
CorMedix stock has galloped to a record-setting $8 and change in the past few days and weeks. Riding on misconceived rumors that it could be bought out, it’s continued to speed along at a decent clip, able to leap over earnings of a lost $0.09 per share, rather than the $0.12 analysts expected.
This blatant warning of March 12 must have breezed past people’s eyes:
“Our total cash on hand as of December 31, 2014 was approximately $4,340,000, compared to approximately $2,374,000 at December 31, 2013. Because our business to date does not generate positive operating cash flow, we will need to raise additional capital before we exhaust our current cash resources in order to continue to fund our research and development, as well as to fund operations generally.
Sure enough, the next day, CorMedix bent to the wishes of money-hungry insiders.
Noting, “We will not receive any proceeds from the sale of shares registered under this prospectus,” CorMedix held the earnings call and filed a registration statement clearing shareholders to sell $19 million worth of stock.
So, 75 stockholders can soon sell 2.45 million dilutive shares on the public market.
A stunning 47 have thrown up their hands and said “We’re outta here while the getting out is good.” They intend to sell every single share.
Selling shares were converted from warrants or notes related to loans given CorMedix. The company would receive about $13.5 million if all warrants are exercised.
Most of these sellers paid about $3.44 to convert those into common shares that they can now do some horse trading with – if they can find buyers.
So who can current shareholders thank for watering down their shares?
Well, check out the entire list here, beginning on page 24. It includes:
- Biggest seller, 12-percent loan maker Galenica, casting off over 165,000 shares. Stake reduced to 1.4 percent from 2.1.
- Former company director Gary Gelbfish and his entities buck off ~96,000 shares, pushing ownership from 6.6 percent down to 6.5.
- Current director and 4.1 percent owner Steven Lefkowitz left over 992,000 shares remaining, after offering over 19,000 shares.
- Current director Matthew Duffy holds percentage steady but offers nearly 5,000 shares for sale.
*One CorMedix selling shareholder has jockeyed a string of decimated companies – one promotes whipworm-egg cocktails.
One of CorMedix’ most notable selling shareholders grabbed a starring role in a recent article by TheStreetSweeper.
Dr. Lindsay Rosenwald, who directly and indirectly loaned ~$604,000 to CorMedix in 2009 apparently is running with the herd, too. Altogether he’s selling more than 138,000 shares.
TheStreetSweeper first warned shareholders in July 2013 about one of biotech’s best known horse traders, Dr. Rosenwald. We told about the curly-haired Dr. Rosenwald’s interesting alliances and his bizarre whipworm egg therapeutic company, Coronado Biosciences (CNDO then ~$8, now ~$3).
Dr. Rosenwald co-founded and financed Interneuron, maker of an anti-obesity drug. The drug was related to the “fen” in the “fen-phen” drug cocktail eventually beset by safety concerns that led to more than 3,000 lawsuits and withdrawal from the U.S. market in 1997.
Other biotech companies he founded or heavily supported have also dumped investors head-first.
Biocryst: once traded at $34, now $10.
Genta: poster child for toxic financial deals, U.S. Food and Drug Administration rejections and horrible clinical trials. FDA ultimately ruled against Genta’s cancer drugs and the company lost a crucial $480 million deal with Aventis. Genta filed for chapter 7 bankruptcy.
Ventrus Biosciences: founded and supported by Rosenwald, traded over $21 in 2011, now trading for ~$1.
Today, perhaps losing interest in CorMedix, Dr. Rosenwald and entities intend to cut back their stake to ~2.8 percent from ~3 percent as selling shareholders.more...
Hydrogenics: Margin Drop, Cash-Poor, Insider Sell-Out And Enough Malfunctions to Make Janet Jackson Swoon
Hydrogenics Corp. (HYGS) suffers an unfortunate link to Janet Jackson - sort of a “wardrobe malfunction.”
The fuel cell company is now dealing with a “parts malfunction” in which it revealed two multi-million-dollar shipments were delayed because Hydrogenics’ supplier had built defective equipment. This mistake by the fuel cell technology company electrified listeners almost as much as the singer’s caper.
Oddly, much as that other malfunction ignited fleeting promotion for a fading star, Hydrogenics’ malfunction may have sparked an unexpected boost for the company, too. We’ll explain that below.
We’ll also look more closely at various big issues threatening Hydrogenics’ business:
*The reputation-damaging parts malfunction.
*Big shareholder sells off stock.
*Gross margin drops heavily.
*Backlog drops – indicating shrinkage of future potential sales - even as some analysts expect 50 percent year-over-year growth.
*Hydrogenics execs back off from 30 percent growth projection – a figure also unlikely to materialize given backlog numbers.
*Burning cash. Company’s shelf prospectus allows up to $100 million worth of banknotes, common stock, etc. We expect an equity raise.
Hydrogenics did not return our requests for an interview for this article.
With a tip of the hat to some old Janet Jackson tunes, we’ll review Hydrogenics’ positives, as well as the negatives that we believe make this stock scarier than any future outrageous attempts by Ms. Jackson to remain relevant.
*”Whoops Now,” Here’s The Bull Case
Canada-based Hydrogenics provides hydrogen fuel cells for stationary and mobile uses, and hydrogen-generating products for industrial applications as well as for energy storage.
The bull argument includes a belief Hydrogenics can sell more products as California, Canada, European Union and Germany develop policies to encourage alternative energy uses.
Additionally, backlogged inventory still appears significant, and bulls add this suggests the pipeline will lead to a positive adjusted EBITDA for 2015.
The maturing and expanding order pipeline should drive more news flow, which analysts believe would be a strong positive catalyst, pointing to growth and stability assuming hydrogen fuel cells become a more common power source.
* “Can’t B Good,” Or Why Did Hydrogenics Have To Blow This Delivery?
The stock has zig-zagged over the past year like a pop musician drunk on fuel cell bubbly. The stock swooned again in December when the company updated investors with the news that delayed shipments would squash 2014 targets.
Then came the day for Hydrogenics to sing out those sour notes in the earnings call. In light of the delays, EBITDA remained negative and the targeted $50 million revenue turned out to be just $45.5 million.
“Let me assure our investors that it was very unusual for these particular parts in question to be defective,” CEO Daryl Wilson said early in the call on March 4.
Those parts were critical. One shipment was destined as a second energy storage system for E.ON, an important German energy and gas customer.
Mr. Wilson said the supplier had simply provided inferior parts for this “OnSite Generation” project and another project that he didn’t name.
E.ON’s Falkenhagen project currently uses Hydrogenics’ 2 megawatt electrolyzer. The system allows the combination of water with excess energy from wind turbines to create hydrogen that is stored and moved into the natural gas pipeline.
A big portion of a $5 million sale and Hydrogenics’ reputation hinged on delivering a second electrolyzer to E.ON. This was to be installed in the Hamburg project that E.ON folks enthusiastically referred to as “the first prototype operating in the 1MW range.”
But Hydrogenics executives indicated the company will recover from this blunder and get paid this first quarter.
We hope so. But we can’t overemphasize the significance of messing up these OnSite Generation orders.
Consider this customer concentration issue: E.ON and the other unnamed important customer are among just four big customers that delivered 39 percent of Hydrogenics’ sales last year.
*”You Want This,” or Darn Right We Want Good Gross Margins. Ahhh, Those Twisty Low Margins
The parts problems went hand-in-hand with another blow-up mentioned gently by analysts in the earnings call. Gross margins fell both sequentially and the same quarter prior year. In fact, margins are by far the lowest since the first quarter of 2013, as shown below.more...
Ebix: The Truth Hurts
Let’s give Ebix (Nasdaq: EBIX) a chance to prove that it has nothing to hide – no accounting fraud, no money laundering, no intentional tax evasion – by challenging the company to a good, old-fashioned game of “Truth or Dare.”
We’ll go ahead and present Ebix with its two options right now. When the company hosts its quarterly conference call tomorrow morning, it can choose to answer the questions raised in this report – and provide the necessary documentation to verify its claims – or it can dare to remain silent and encourage us to stick with our own jarring conclusions instead.
Let’s get started. Since Ebix has grown so accustomed to fielding softball questions from the only analyst who recommends (over even follows) its stock, the company might need a little bit of extra time to prepare.more...
Resonant Hypes Phantom Customer. Seriously?
This stock’s been jumping around like a youngster hyped up on sugar and now we’re sending Resonant Inc., (RESN) to the time-out chair.
And thanks to its latest press release flaunting a mystery customer, the Santa Barbara, Calif. filter company doesn’t get to go outside for a long, long time.
Investors punished the company late last month for increased losses – and more importantly for its deficient product not meeting the standards of its Skyworks customer – sending shares to $15.33 then tumbling back down to $9.54 the next day.
Corporal punishment ensued in the form of six law firms investigating possible securities violations and possible breaches of fiduciary duty regarding the deficient filter design geared to help cut unwanted frequencies in mobile devices.
Ultimately, the only thing odder than the press release Resonant launched 10 minutes after the market closed Monday, March 9 was the reaction to it. Amid rumors that bull pieces or a leaked press release instigated buying, shares began rocketing, approached $12.99 around 11:30 a.m. and jumped more after hours to $14.40.
Resonant’s press release simply stated it “has engaged” with an unnamed second customer for an unnamed product.
“The customer has not committed to use the resulting design and terms for a license have not been finalized,” Resonant stated in the release.
Meanwhile, Resonant’s phantom customer became a topic at the ongoing Roth Conference in Laguna Niguel, Calif. where the company is scheduled to present today, March 10.
“The way you look at these no-commitment type deals is that’s exactly what it means. No commitment. No risk,” an analyst attending the conference said Monday.
“If Resonant came up to me and said, ‘Hey, I’m going to do a design for you for free.’ I’m like, ‘Sure, man, why the heck not? If you want to give away stuff for free, I’m taking it,’” he added. “So I don’t understand why the market got all excited about it.”
*Skyworks: Substandard Resonant Productmore...
Anthera Pharmaceuticals: Another Cash-Poor, Bubbly Biotech About To Blow Apart
Anthera Pharmaceuticals (ANTH) investors may have forgotten its 2013 drug study scandal that set the scientific community spinning, as well as the Nasdaq delisting that it barely dodged again last month.
Caught in the shimmering biotech bubble, Anthera continues to get rewarded by the market as surely as the California biotech continues to destroy shareholder value. But, hey, at least detective work can uncover those deeds in its SEC filings and elsewhere. That’s what we’re here for.
Here, investors may find other viewpoints on this company working to develop and sell products for serious diseases associated with inflammation and autoimmune diseases.
So let’s look more closely into some issues this company faces:
(1) Caught up in the biotech bubble, which experts say may be on the verge of bursting.
(2) Burning millions and burn rate is expected to accelerate under further attempts to meet FDA approval; expect a potentially dilutive equity raise.
(3) Material weakness issues.
(4) One analyst downgrades stock, another analyst calls stock a sell/high risk.
(5)Unusual executive enrichment despite debilitating $309 million deficit.
*Stock Price Wrapped in Glistening Biotech Bubble Ready to Burst
According to a March 6 Bloomberg article “These Investors Think There’s a Biotech Bubble That’s About to Burst,” containing telling charts, the 269 biotech companies were primarily responsible for the Nasdaq’s gain over the last four years.
But “the end is coming,” according to one quoted expert.
Bloomberg continued: “Now there are signs that the biotech industry’s fortunes could change. One key measure of investor pessimism, the short interest ratio, has about doubled for the Nasdaq Biotechnology Index since 2013, according to data compiled by Bloomberg.”
Irrational exuberance infects the biotech arena. It’s really approaching the level TheStreetSweeper warned investors about in our article in August 2013, “The ExOne Company: Irrational Exuberance Obscures Black Clouds Building Around 3-D Printing.”
At one time, 3-D printing somehow worked its way into conversations at parties, at the local bar and grill, and around the dinner table. People couldn’t stop talking about it. Couldn’t resist investing in it. Though it was old technology, virtually everyone seemed convinced that 3-D was the next big thing. The talk just stopped.
And take a look at the ExOne and 3-D Systems (DDD) stock chart – and what happened during that miserable burst bubble.more...
Eyes Wide Open: Second Sight Medical Products Becomes Another MDB Capital Special
Second Sight Medical Products (EYES) creates a bionic eye for blind people.
It seems a cool business opportunity, at first glance, to implant electrodes in the eye to ultimately create images that the blind see as shapes or patterns.
The market, indeed, considers Second Sight worth $559 million. This stunning valuation exists despite the fact that the Sylmar, Calif. company made only $1.5 million in sales in all of 2013 – and it costs Second Sight close to $3 for every $1 the company makes.
So we took a critical look at Second Sight, the market and business plan. And we got quite an eye-full.
Here are some top reasons we believe Second Sight is fantastically overvalued and headed for a crushing reality check:
*Big investment firms yawn. So debt-riddled company grabs MDB by arm, hits Wall Street.
*Patient acceptance issues and FDA adverse event reports arise over Second Sight’s retinal prosthesis.
*Market tiny. Scale problems enormous. Next target minimum four years out.
*Stock lockup expiring; CEO gets break on stock bought with Second Sight cash.
*Look out ahead: Unless Second Sight plans nothing, more cash needed.
Second Sight’s key retinal prosthesis has three parts: an electronic device implanted and around the eye, a tiny video camera attached to eyeglasses, and a video processing unit the patient carries or wears.
While investors may find other viewpoints here, let’s look at the eye-popping details surrounding this company now trading at well over 100 times sales.more...
Sportsman's Warehouse: Too Many Bullets to Dodge?
Sportsman’s Warehouse (Nasdaq: SPWH) looks an awful lot like a sitting duck right now. Since its largest pure-play competitor has already shot off its mouth about the “wickedly competitive” nature of the recent holiday season ahead of the company’s fourth-quarter report, SPWH must feel like it’s treading water with the equivalent of a neon target on its back.
Unless SPWH somehow managed to dodge a relentless slew of bullets over the holidays, in fact, the company has probably spent the past couple of months in serious pain. We should know for sure in a matter of weeks.
With rival Cabella’s (NYSE: CAB) slashing its prices in order to steal business away from the competition during the crucial holiday season, however, SPWH sure looks vulnerable to a devastating miss. Just listen to some of the noisy warning shots fired by CAB earlier this month, and imagine the fallout that SPWH likely suffered as a direct result.
“We felt like when we talked to you guys in October that it was going to be a promotional environment, and we felt pretty good about our November and December promotional cadence. (But) as we started getting into November, it became very clear that it sure felt like there was a lot less consumer disposable income. And retailers, mostly outside of our space, really started cranking up offers -- to the point that some were almost ridiculous – weeks ahead of Black Friday. We just felt like, to protect our franchise and to maybe be opportunistic and take share, we had to jump into the fight. And what that meant was it took more discounts, as the consumer was very promotionally minded in the quarter.”
“It was definitely a war for the customer’s dollar in November and December, (and) I don’t think we were unique in feeling the unbelievable pressures … It was a wickedly competitive environment. (So) we used our leadership position to get in the fight – which a lot of our competitors can’t. And that was kind of the story of the quarter.”
“While we didn’t feel great about the earnings impact, we definitely took it to people from a share standpoint … During the quarter, we were able to grow market share in almost all of our major merchandise categories. We are pleased with our ability to grow share during the quarter and further pleased we have seen this trend continue into the first quarter of 2015.”
“It’s a whole new world, with affiliate networks and mobile apps and comparison shopping engines and all of that stuff. And I don’t think the promotional environment in the fourth quarter of THIS year – unless the economy improves greatly – will be much less intense.”more...
Ballard Power Struggling In "Extremely Silly" Niche
Fuel cell maker Ballard Power Systems (BLDP) has let its best technology slip away and insists on weaving down a long, bumpy road to nowhere on three flat tires.
“That’s where the magic really happens,” a longtime clean-tech analyst told TheStreetSweeper. “And that’s what Volkswagen bought.”
But the fuel cell manufacturer would have been wiser to ink a deal to sell its customer, VW, all the fuel cells it wants. However, blinded by the cash infusion, the market excitedly ran up the stock by $1, though the deal was really worth only 38 cents per share ($50m/132m shares).
Ballard’s agreement does include a $30 million VW service contract extension to 2018. Unfortunately, though, that money will get coughed out over the years.
Besides tossing away its prime technology, other issues facing Canada-based Ballard include:
*No significant opportunity remaining.
*Expert calls fuel cell cars “extremely dumb.” Volkswagen adds, “decades away.”
*Google and Apple cars: Electric, not fuel cell, for a simple reason.
*China prospects fold.
Though investors may read different viewpoints here, we’ll hit other issues threatening Ballard stock with a Hindenburg-esque explosion.
*No significant opportunity left.
Some investors may be clinging to the hope that Ballard could strike a deal similar to the VW arrangement with other car companies.
So Ballard traded its technology – which it bought last year from United Technologies Corp. - for cash. But the arrangement has left Ballard with little more than the ability to sell fuel cells for buses.
Ballard did recently hype a possible deal for supplying fuel cell technology for 10 buses – but this is more of a very slow, low-rev process that’s been going on for a long time with little financial impact.
*Experts, even Volkswagen, say fuel cell is decades away.more...
iBio: Capitalizing on Ebola Misunderstanding
*iBio shares are flying on misunderstood news. Shares jumped ~46% this morning, from $0.90 at previous day's close to about $1.32. The market has misinterpreted Sunday’s “60 Minutes” program spotlighting Ebola.
*iBio is not even mentioned. And there’s no reason iBio should have been mentioned. The program focused on the experimental, tobacco-based drug ZMapp.
*iBio had seemingly aligned itself with ZMapp previously. iBio wrongly asserted that its patents and technology would be licensed by ZMapp makers, claim recent class action lawsuits.more...
Miller Energy: Alaska Debates Cutting Vital Tax Credit Handouts
THESTREETSWEEPER QUICK HIT – Terrible, cash-eating news from Alaska threatens to drive another stake into Miller Energy Resources (MILL). The bleeding Knoxville, Tenn. company is already struggling beneath a recent executive chairman’s margin call that led to panic selling, enormous debt, big earnings/revenue misses and low oil prices.
The last thing the company needs is a hit to its tax credit receipts.
That’s because tax credits tied to Miller’s exploration in Alaska have meant millions to the oil and gas company each year. Miller anticipates receiving about $72 million in Alaska tax credit receipts in 2015.
Alaska issues tax credits to oil producers to encourage exploration in the state. The company applies for these credits each quarter and frequently notes that operations depend heavily on tax credit money.
Every spare dime is coveted, as new CEO Carl Giesler told analysts in December: “From both the financial and operational perspective the quarter was disappointing to put it mildly.”
But now it’s obvious that Alaska Gov. Bill Walker is having second thoughts about the very tax credits that keep Miller pumping.more...
On Deck Capital: Loan-Shark Rates, Bad Loans, Bad Business Plan
On Deck Capital (ONDK) seems to be swimming within those murky waters populated by loan sharks. Indeed, the online company makes loans to desperate small businesses with bad credit and charges them astronomic interest rates.
On Deck doesn’t tout the actual annual percentage rate charged. Yet fishing deep into federal filings yields actual APRs far above the company’s advertised rate of 18 percent to 36 percent.
In fact, filings show the company charges these desperate borrowers an annual rate as high as 99 percent.
On Deck gets away with this because interest rate laws affecting commercial loans vary from state to state. California, for example, sets the rates at 10 percent or 5 percent above the Federal Reserve Bank rate. The permissible limit is 9 percent in Illinois. In fact, a new report out today says payday lenders definitely face stricter regulations, so On Deck and peers may no longer get to fly under the radar.
Successfully positioning itself as a technology play for its initial public offering on Dec. 17, On Deck’s stock spiked to nearly $29.
So the market has slapped over $1 billion in value on a company with $354,000 net income in its pocket.
All that for a business model eerily similar to those that handed us the subprime lending crisis.more...
Novatel Wireless: Fundamentally Flawed Business Plan, Lockup Release Lather Up This Soap Opera
Novatel Wireless (MIFI) rose from a virtual bodice-ripping B-grade soap opera star into a proper Wall Street darling in three months, with shares bursting to ~$5.50 for more than a 78 percent gain.
But while Novatel has recently shed some drama (read the steamy shareholder letter here), the company remains fundamentally flawed.
The wireless solutions technology provider primarily sells pocket-sized wireless modems to allow Internet access anywhere and also machine-to-machine modules.
But we don’t believe this San Diego, Calif.-based company is likely to return the love investors have thrown at it recently.
For other viewpoints on Novatel, click on this link. Read on to find out why we consider Novatel risky both now and later.
*Why Novatel’s biggest revenue-generator is unlikely to reach expectations.
Novatel is focusing on the MiFi system - a Wifi hot spot provided through a wallet-sized box that consumers on the go can use to access the Internet with their mobile gadgets.
“They’ve been doing that for a long time. It’s a brutal business. It’s always been brutal,” said a tech analyst who requested anonymity. “The margins are terrible.”
In fact, the product produces less than 11 cents to a little over 20 cents for each dollar sold. The margins improved last quarter – special thanks go to a $2.9 million inventory write-down and selling $2 million in old inventory at near cost.
Novatel must hate having a bunch of its obsolete China-and-Thailand-made inventory sitting around. Yet it says “increased competitive pressures” may force more of these write-downs.
With historically bad margins and declining revenue grabbing Novatel by the throat, some leaders wanted to sell the MiFi division, according to sources.
But, of course, the spinoff didn't happen.
*No buyers for MiFi is spooky enough. But there’s more.
Then, with no other company apparently wanting MiFi, miserable share prices and a poorly settled class action lawsuit, activist shareholders lobbed a rip-roaring fiery letter alleging Novatel had been mismanaged. The company booted executives and directors and installed new ones, and even replaced its old “NVTL” stock symbol with “MIFI.”
Emerging from this soap opera, activist shareholder/interim CEO Alex Mashinsky became the permanent CEO. Fellow activist shareholder Richard Karp joined him on the board of directors.
The leadership that emerged from the summer of 2014 bloodbath is now trying to pick up the sagging MiFi business responsible for nearly 79 percent of Novatel’s sales.
But the results have been disappointing.
Last quarter, revenue from MiFi dropped a blistering 59 percent. Yes, compared with a year ago, MiFi revenue is a whopping $49 million lower. Net losses rose an unspeakable 58 percent to $8.8 million.more...
Jamba Juice: Potent Hype, Bitter Aftertaste
Maybe Jamba Juice (Nasdaq: JMBA) investors should have gulped down a bunch of carrot-infused smoothies before they ever started drinking the company’s Kool-Aid. With a little sharper vision, they might have seen right through some of the more obvious hype surrounding the company’s new “asset-light” strategy and noticed at least a few of the overlooked realities that make its celebrated plan seem like such an unhealthy idea.
Wait until they discover the bitter ingredients that Jamba has decided to include in its half-baked recipe for success. Before they reward Jamba with any more applause for the steps that it has taken to transform the company into a leaner – and ultimately more profitable – smoothie chain, they better make sure that they can stomach the danger posed by the bitter surprises listed below:
· For starters, Jamba has effectively diluted the cost reductions that it has rushed to celebrate by quietly recording a mountain of buried expenses that makes its reported savings look wildly overblown.
· In yet another move that seems to make little sense (unless the company simply hopes to prop up its share price), Jamba has decided to sell more than 100 of its top-performing stores and then use the proceeds to purchase its own stock – at a much steeper multiple of earnings – instead.
· By “refranchising” those valuable stores, Jamba actually stands to raise far less money than wishful bulls like to think, while sacrificing most of the generous revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) currently generated by those busy locations.
· Even with the possible (if not likely) benefit of one-time gains from asset sales, Jamba expects its future EBITDA to fall 30% below outdated Wall Street estimates that analysts continue to maintain in spite of the much lower forecast presented by the company itself.
· In a failed effort to boost customer traffic that has already led to a horrific quarterly miss – and threatens to remain a lingering drag on its future results – Jamba has introduced lower-margin products (such as fresh juices) that have simply cannibalized smoothie sales and obliterated its profit margins instead.
· Finally, Jamba has spent years relying on a CFO previously employed by a pair of companies that seemed almost cursed with bad luck -- one of them already bankrupt and the other severely wounded -- after they left her in charge of keeping track of their own books.more...
TubeMogul: Why This Stock Will Go Down The Tubes
Behind the scenes, TubeMogul (TUBE) is in a world of hurt. Digital media giant Google has practically run away with one of Tube’s biggest customers.
But this bad break – and its unfortunate future implications – has flown under the radar until now. It’s the first of three negatives threatening to clobber Tube’s share price.
Flash back to last June. Folks in the Emeryville, Calif. headquarters buzzed with anticipation that TubeMogul had seemingly knocked down a king-maker partnership with Mondelez International.
TubeMogul provides self-serve software that allows advertisers to plan, buy and measure the effectiveness of video ads. Its recent customer Mondelez manufactures Oreo, Wheat Thins and various chocolates, gum and candy.
“Mondelez International's digital branding strategy has always been ahead of the curve,” Brett Wilson, TubeMogul's CEO and co-founder said. “The way they harness the power of software to amplify their strategy is groundbreaking and we're proud to enable that in video.”
The deal helped propel the money-losing Tube to its initial public offering last July.
Tube quickly settled into an overvalued spot on the Nasdaq. Though the IPO price got cut to $7 from the originally proposed $11-$13, Tube shares blasted off, quickly gaining 240 percent. Shares settled recently around $16, handing the company a valuation approaching half-a-billion dollars.
But just four months after the TubeMogul announcement, Google and Mondelez held what’s described as contentious behind-the-scenes negotiations.
“Google wanted Mondelez to use DoubleClick Bid Manager, Google’s demand-side buying platform, instead of competitor TubeMogul, to execute the YouTube transactions as part of the deal, and it was using YouTube’s TrueView pricing system as leverage, according to multiple executives directly involved in the negotiations,” Digiday, a website for tech geeks, wrote of the Mondelez-Google negotiations.
Google had pushed Tube aside.more...
Tekmira Pharmaceuticals: Spinning Its Next “Big Story"
Tekmira Pharmaceuticals (TKMR) may not have found its next big biotech thing, after all.
After a crazy-good run riding the Ebola scare from obscurity to prominence in just a few months, the company found itself searching for something new to keep investors interested. Tekmira’s betting that hepatitis B will be it.
Now, on Tekmira’s recent tepid announcement of dosing one person in its tiny 20-patient clinical trial, shares jumped 2.7% - far short of the long-gone Ebola gains of 280%-plus.
Indeed, Tekmira reminds us of another Ebola treatment-next-big-biotech-thing wannabe that TheStreetSweeper warned investors about, iBio (then $1.88, now ~$0.52).
While other viewpoints about Tekmira are available here, let’s look at some issues surrounding Tekmira’s latest, greatest target.
*TKMR STOCK PROMOTORS GONE WILD.
Tekmira has become a heavy favorite among stock promotors. Between March 1, 2012 and Sept. 3, 2014, sites ranging from “Penny OTC Stocks” to “Wall Street Resources” issued reports on TKMR a total of 21 times.
On March 1, 2012, for example, with the stock drooping at $2.56 per share, five – yes, five – stock promotors sent out positive reports about TMKR to potential investors.
It worked. TKMR fetched as much as $2.91 by the end of the day – a striking 8 percent gain.
Two years later, on March 6, 2014, a total of 10 stock promoters reported on Tekmira. Yes, 10 separate promotions on the same day. Coincidence? We don’t think so.
With news reports on Ebola rampant and Tekmira promoters out in force, Tekmira shares rocketed from about $19 on March 4 to about $28 on March 6.more...
Ziopharm Oncology: 5 Potential Downsides To Its New Deal
Though the share price has fallen, the excitement handed a roughly $900 million valuation to a company with a $362 million deficit and no product.
The deal trades licensing rights for MD Anderson’s non-approved cancer technology for $100 million worth of shares from both ZIOP and XON. ZIOP has also committed to paying $15 million to $20 million yearly to the cancer center for research and development for three years, though the press release is fuzzy. ZIOP must pay the first $3.75 million within two months.
Ominous details surround ZIOP’s dollar-and-dilution deal, as well as ZIOP itself. Here are the top five reasons why TheStreetSweeper dislikes this deal and sees loads of downside ahead:
- ZIOP doesn’t have the money to pull off this deal. So we believe ZIOP will have to sell stock, posing imminent dilution.
ZIOP has just $46 million in cash. Its own quarterly report says that’s “sufficient to fund operations into the fourth quarter of 2015.”
But that was before the new agreement. ZIOP is burning over $7 million per quarter. And it is now committed to pay about half that much - $3.75 million to $4 million quarterly - to The University of Texas MD Anderson Cancer Center in Houston for three years.
- Shares worth $15 million offered as incentive to speed contract signing.
The day ZIOP was scheduled to present to JP Morgan, Jan. 14, turns out to be the very day ZIOP pulled this licensing announcement out of its ear. JP Morgan acted as underwriter during ZIOP’s roughly $54 million public offering in October 2013 at $3.50 per share. But that timing may not have been mere coincidence.
The kicker: This “highly sensitive and confidential” letter to a University of Texas vice president of strategic industry ventures describes $15 million worth of incentive shares – 1.6 million ZIOP shares and 278,218 XON shares – not included in the licensing agreement, to hand to MD Anderson to speed up the expected 120-day contract approval process. That way, the chief executives of ZIOP and XON who signed the letter could issue the public announcement during the JP Morgan conference. The letter added:more...
Amira Nature Foods: Hungry for Another Big Helping of Cash
So what if Amira Nature Foods (NYSE: ANFI) found some way to sweeten its guidance? The company needed to score a few brownie points after its latest financial results proved so difficult to swallow. Now that its stock has rebounded to more appetizing levels, the company can try to better satisfy a powerful craving of its own.
With the rest of its cash earmarked for a big-ticket processing facility that will cost a whole lot more than it can presently afford, Amira desperately needs to raise a fresh mountain of dough pretty soon.
Before Amira returns to the capital market for the money to cure its hunger pains, however, the company better get ready to start eating its words. Amira might want to go ahead and hold its nose. We knocked the sugar coating off the bitter truth.
Remember the onerous $144 million debt load that Amira went public to reduce a couple of years ago? The company sure gave up on that idea in a hurry. After using most of the proceeds from its initial public offering to reduce its leverage, Amira soon dug itself into another deep hole and has since gone on to saddle itself with an even more staggering $184 million debt load instead.
Or how about the lower interest rate that Amira kept insisting, quarter after quarter, that it would soon manage to secure? Despite all of the cheap credit available to even seemingly hopeless companies, Amira never managed to negotiate a better deal of its own, for some disturbing reason. With the interest rate on its bank debt actually escalating in recent quarters – and the interest rate on its overdue payments to suppliers literally topping 20% -- Amira has found itself paying such a high effective interest rate that the company might as well use a credit card to finance its day-to-day operations.more...
Sportsman's Warehouse: Aiming Too High for Its Own Good?
Sportsman’s Warehouse (Nasdaq: SPWH) seems almost determined to shoot itself in the foot again.
Under the gun to hit ambitious growth targets that look increasingly difficult to achieve, SPWH has tried to overcome a persistent decline in same-store sales by rapidly building new stores on credit after following a similar plan straight into bankruptcy. This time, SPWH faces even stiffer competition in a market hurt by plunging sales of guns and ammunition – a business that accounts for roughly half of its revenue – too, as big-name players like Cabela’s (NYSE: CAB) and Bass Pro Shops race to open new locations of their own. Willing to settle for the leftover scraps that likely remain untouched for a reason, SPWH has decided to focus more heavily on smaller markets that rival chains might understandably choose to avoid.
After all, SPWH has started hunting for new business in some rather dinky towns.
SPWH intends to open five of the eight new stores that it has pledged to build during its next fiscal year in towns with a combined population of barely 70,000 residents. In fact (as illustrated in the section that follows), three of those new locations will serve entire counties that look either too small or too poor to support one of the company’s big-box stores.
With a measly $1.7 million in its bank account and a staggering $219.3 million worth debt on its balance sheet, SPWH obviously cannot afford to start blowing a bunch of precious cash on new stores that make little business sense.more...
Freshpet: An Overvalued, Bad, Bad Dog
By Sonya Colberg, TheStreetSweeper Senior Investigative Reporter
Freshpet loses money as it installs and maintains refrigerators in stores to display its natural, slightly cooked dog food.
The New Jersey company released numbers late Tuesday showing its $0.14 loss exceeded analysts’ $0.12 expectations on revenue of $22.5 million. Consequently the stock dropped, followed by a jump to about $19.
But we’ve pawed through Freshpet’s numbers and were astonished to determine how many dollars the company makes per fridge:
About $19.57 per day.
That’s less than a $27.49 tube of Freshpet Vital.
So a company that the market says is worth over $600 million sells the daily equivalent of one meat tube per fridge.
And, according to the conference call, Freshpet’s expecting that figure to reach only about $21 to $22 at the end of 2015.
So it appears this money-losing company is all but certain to continue losing money.
At the core of that issue, TheStreetSweeper has dug up three overriding challenges facing this 10-year-old Secaucus, N.J. company.
And we believe the overall challenges make this stock worth less than one-third its current price.more...
Radcom: Radically Misunderstood, Radically Overvalued, Part 2
By Sonya Colberg, Senior Investigative Reporter
In the first part of TheStreetSweeper’s two-part series on Israel-based company Radcom (RDCM), we described the software company’s negative trends and predictive chart.
Now, Part 2 highlights the top three additional supporting reasons we expect Radcom will follow that chart:
- Hype and the misunderstood analyst expectation beat.
Shares jumped 44 percent on the report Radcom revenue rose about a million bucks last quarter to $6 million, while earnings per share beat analysts’ expectations (10 cents actual EPS; 3 cents analyst estimate).
An analyst we spoke with speculated that the low estimate may have been due to either a lack of information about Radcom or a desire to prep Radcom for a possible upcoming stock offering.
And the charts below show other stock picks have gone bad, too:
Local Corp., LOCM, Analyst’s Target Price=$4more...
Radcom: Radically Misunderstood, Radically Overvalued, Part 1
The Tel Aviv, Israel company switched from its money-losing hardware business about nine months ago. Investors went mad when Radcom pulled its finances out of the red as it introduced software designed to address customer service problems for telecom companies.
In fact, investors inflicted with Rad fever have plunked down three times more for Radcom than other industry stocks.
But there’s trouble ahead.
Indeed, the company’s stock historically rises on hype, while it drops on insider sales and large private stock sales. Check out the chart below showing the rise and fall of Radcom’s stock price – a chart that predicts Radcom shares will likely collapse again in the near future.more...
Blue Nile: Breaking Hearts – And Share Value
Diamond seller, Blue Nile (NILE), is in the business of turning romance into cold, hard cash.
As if that isn’t tough enough, the Seattle, Wash. diamond and jewelry retailer is selling online. While the company’s courtship of customers is getting tougher, recent creative hype has blinded investors into buying into the dream and pushing the market cap to a stunning $400 million.
But this love story is doomed. Here are some highlights on why TheStreetSweeper believes the diamond company will quickly lose its sparkle once again:
*Diamonds are a girl’s best friend: Cheap won’t cut it.
NILE’s engagement business is at risk partially because a woman may feel a slight wave of disappointment when Prince Charming shows up with a diamond – and it’s from a Wal-Mart-esque online store.
NILE execs admitted during a summertime William Blair stock conference, in fact, that the biggest problem is getting men to buy engagement rings online because there’s “a trust component and then there’s a relationship component.”
CEO Harvey Kanter added, “I think that that -- the reason why growth rates haven't been sustainably high has been that we still have to get a lot of the market to understand that.”
*NILE’s recent “test:” Weakening business model.
Mr. Kanter said NILE is now “testing” a brick-and-mortar store in Rhode Island and in Seattle. This appears to be a test of the idea that customers may consider buying engagement diamonds online less satisfying and riskier than seeing and touching them in a store first.
Keep in mind that the reason NILE can sell jewelry cheaper is because, as an online company, it has been able to avoid the costs of physical buildings, utilities and sales people of traditional jewelry stores. And now it’s trying to compete in brick-and-mortar with thousands of established jewelry stores.more...
Receptos: A Bloated Highflier Dumped by Insiders Nervous about the Truth?
Receptos (Nasdaq: RCPT) looks even luckier than usual right now. The bleeding biotechnology firm has racked up such mind-blowing gains over the past few weeks, in fact, that even its own executives – who just dumped more than $35 million worth of the company’s highflying stock – must wonder how long its good fortune can actually last.
With its stock price recently exploding into the triple digits, making the company worth a staggering $2.9 billion years before it even hopes to seek approval of its very first drug, Receptos arguably looks priced beyond perfection at this point.
For starters, Receptos now owes more than a third of its lofty valuation to a Phase II study that barely even managed to achieve its primary goal. When Receptos issued a positive update about that ongoing trial a few weeks ago – sparking a wild celebration that expanded its market value by almost $1 billion in a single day – the firm actually provided enough underlying data to reveal that a tiny handful of patients happened to narrowly swing the results in its own favor.
Just pull out that announcement and grab your calculator. Once you complete a few simple equations, you’re bound to arrive at that striking conclusion yourself.
Start with the 199 patients that Receptos enrolled in its “Touchstone” trial, a Phase II study designed to test its leading drug candidate RPC1063 as a possible treatment for ulcerative colitis (UC), and then divide those subjects into three different groups: one for patients who received a “high” 1 milligram dose of the drug; one for patients who received a “low” 0.5 milligram dose of the same medication; and one for those who received an inactive placebo. Assume that Receptos made sure that its researchers distributed those subjects as evenly as possible, with 66.3 patients assigned to each arm of the trial. Now, you can estimate just how many patients actually recovered after taking the company’s experimental drug.
Of the patients treated with RPC1063 during the eight-week induction period of that clinical trial, only 16.4% of those who received the high dose and 13.8% of those who received the low dose – or the equivalent of 10.9 and 9.2 patients, respectively – achieved clinical remission to meet the primary endpoint of that ongoing study. Even so, the high-dose group somehow fared well enough to hit the primary endpoint of the study by achieving “statistically significant” positive results. In the second group, however, the recovery rate – lowered by just one or two patients – fell short of reaching that crucial goal.
Talk about a very near miss!
Who knows if RPC1063 really sent those patients into remission, either? After all, at least some of the patients who received nothing but a placebo actually wound up recovering on their own.
Company insiders have already struck it rich regardless. Unwilling to wait for Receptos to determine whether its experimental UC treatment actually works or not, a crowd of senior executives recently jumped at the chance to hit a surefire jackpot instead.
Earlier this week, nearly half-a-dozen members of the senior management team – including the CEO, the chief medical officer, the chief scientific officer, the chief technology officer and the senior vice president of corporate development – took part in a lucrative insider-selling spree that turned all of them into overnight multimillionaires. The biggest winner by far, Receptos CEO Faheed Hasnain walked away with a gigantic $21.9 million windfall that easily exceeded all of the multimillion-dollar fortunes collected by the remaining four executives combined.more...
Uranium Resources: No Production, Little Cash, No Good Options Left
Shares of Uranium Resources (URRE) exploded this week as Japan hit the switch on its first nuclear reactor since the earthquake-and-tsunami fueled nuclear disaster of 2011.
The Centennial, Colo. uranium mining company idled its operations years before Japan shut down all nuke plants in the wake of the Fukushima disaster.
Yet investors have begun grabbing URRE stock on the hope that Japan’s nuclear plans might make it worthwhile for URRE to restart mining. Though the price is settling down, this speculation shot URRE shares up by a whopping 61 percent in a few days to close Wednesday at $2.49.
But all is not quite as optimistic as it seems.
“Uranium Resources will probably be bankrupt before that one plant starts up,” said an analyst who requested anonymity. “It’s a really tough situation.”
Here are highlights of the gut-wrenching situation:
*Production has ceased. URRE hasn’t produced one ounce of uranium in five years.
Here’s what a URRE filing says:
“As a result of low uranium prices, we ceased production of uranium in 2009.”
“None of URI's properties are currently in production.”
*URRE would restart mining only if uranium reaches and sustains prices above the cost of restarting and production, at least in the mid-$40 range.more...
PhotoMedex: Letter Alleges Faulty Equipment, Possible Cover-Up
PhotoMedex (PHMD) is poised for another shocker on top of the one sparked by its $85 million loan covenant default just described by TheStreetSweeper.
Now the TheStreetSweeper has discovered a jolting new risk wrapped up in a “Laser-gate” letter that suggests management knew about dangerous equipment problems and tried to quietly fix them, allegedly without notifying federal regulators.
Best known for TV ads touting its roughly $300 no!no! hair removers that work no better than common $3 razors, the Horsham, Pa. company’s segment under fire now is its laser business.
TheStreetSweeper obtained a copy of a letter just sent to the FDA on Oct. 7, requesting an investigation into PHMD’s XTRAC laser machines and what the whistleblower implies may have been a company cover-up of some laser machines’ dangerous random firing action.
PhotoMedex: Deadline Ahead; All Options Look Ugly
PhotoMedex (PHMD), maker of no!no! hair scorchers seen on TV, quickly defaulted on covenants of an $85 million loan. Now Wall Street has slashed the company’s value to less than the loan value as PHMD spirals toward an ominous deadline.
On Oct. 31, the company is expected to face one of three difficult options:
- Deal with a rewritten note.
- Continue struggling under a new forbearance.
- Go into foreclosure.
All options pose significant risk to investors.
“As a stock, I would not even touch it,” said analyst Hamed Khorsand of BWS Financial.
Depending on the solution lenders settle on, PHMD’s next steps would be to: Somehow drastically increase sales, try to sell stock to wary investors, or sell assets.
“I’ve seen stories like this before where companies can’t get out of it,” Mr. Khorsand said.
“And eventually it becomes a zero.”
Already Wall Street considers the company worth about $80 million – far less than the $106 million PHMD paid for LCA-Visionlaser vision correction clinics.
The scenario does not look good to Mr. Khorsand, who folded his long position last spring after two years of coverage, primarily because he surmised that PHMD didn’t answer him honestly and “I don’t like management that lies to me.”
“LCA isn’t making money and no! no! is not making money and they’re out of Japan,” where no!no! was once distributed, said Mr. Khorsand. “So it’s too many issues.”
TheStreetSweeper warned investors that PHMD would lose distribution in Japan.
And we described other daunting risks, some directly related to product quality, including a bizarre adverse event reported to the FDA involving one of PHMD’s laser instruments. During a surgery last year, the laser reportedly started a fire inside the patient’s throat.
And PHMD faces even more pressure, thanks to more issues TheStreetSweeper will describe very soon in our next article on PHMD.
PHMD did not return TheStreetSweeper’s numerous requests for comment.more...
Vimicro: James Bond Might Say, "A Storm's Coming" For This Spy Company
Vimicro International (VIMC), a Chinese company that makes video cameras for spying, has fallen under our surveillance. And investors won’t like what we’ve uncovered.
Founded in 1999 in the People’s Republic of China, the company’s video processing business quickly declined and the focus has sharpened on security video systems sold in China.
“It’s a fairly boring hardware business,” yawned an analyst. “There are companies hundreds of times better that are in a better position … And over time, Vimicro’s margins are going to shrink further and further.”
VIMC’s stock gyrations have been anything but boring recently.
In a year of mediocrity, the stock price screamed from a few bucks to the $10 level in a spillover from investor interest in GoPro (GPRO) action camera and the Ferguson incident, as well as some VIMC hype. The stock is now above the sole analyst’s price target of $10, yet analysts we’ve spoken with think the stock is worth half that.
For this company, “A storm’s coming,” as secret agent 007 James Bond said. Here’s why we’re blowing the cover on this company that reported a $56 million net loss over the last three years:
- Insiders racing to sell; millions more shares may be ready to zing investors.
Options for 2.3 million shares at $0.195 expired just last week. That amounts to about 20 percent of outstanding shares.more...
IBIO: A Wannabe Ebola Player Infecting Buyers with False Hope
Shame on iBio (Nasdaq: IBIO) for pulling a dangerous stunt that could soon cost its shareholders a staggering fortune. No matter how tempted IBIO might have felt to further capitalize on the Ebola scare – or how thrilled it must be with the immediate results – the company should have known better than to hype a vague possibility so remote that it looks downright farfetched.
Get ready for the truth to unfold and reality to exact its inevitable toll.
Let’s cut to the chase and get straight to the point. In short, IBIO has suggested that its technology might play a serious role in the mass-production of a promising new Ebola drug that already utilizes a rival delivery system to handle that process instead. Since IBIO has so far tested its own delivery system on just a handful of vaccines in early-stage safety trials – and the company never even bothered to mention the word “Ebola” in its recent 92-page 10K report – the government might feel understandably reluctant to let some manufacturer casually substitute the firm’s experimental technology for the very platform used to engineer that vital treatment and simply hope that it produces the same kind of results.
Last week, in fact, the head of the government-funded lab where IBIO would like to offer its services virtually ruled out the likelihood of any changes to the existing process at all. Look at the revealing comments shared by Dr. Brett Girior, chief executive of the health science center at Texas A&M, in the following excerpt from a recent media report:
“’We believe there are substantial opportunities to increase the yield of ZMapp’ (the new Ebola treatment) in plants while keeping the product the same,’ Giroir said in an interview. The compound needs to be identical to what Mapp (the maker of the drug) has already vetted in animals, ‘or you would have to go back to the beginning for safety testing,’ he said.”
Based upon the information that we’ve uncovered while conducting our extensive research, we feel so confident that IBIO will play no role in the urgent mass-production of ZMapp that we dare the company to present any concrete evidence that clearly suggests otherwise. We also strongly encourage bullish investors to present the same type of request to IBIO or, better yet, Caliber Biotherapeutics -- the firm that IBIO likes to treat as its potential ticket to the ZMapp production line – since they have put so much money on the line. We highly doubt that they’ll feel quite so confident in their investment once they finish that exercise, but we invite them to share any feedback that might prove us wrong as well.more...
Solazyme: It Isn't Easy (Or Profitable) Being Green
Trouble is blowing the lids off the petri dishes at Solazyme (SZYM), where the company has fruitlessly toiled for 11 years at turning sugar and algae into profit.
The San Francisco, Calif. oil-maker’s income statement and analyst estimates are already steeped in red.
It battles increasing net losses (note that, besides Sephora and other stores, SZYM also unfortunately hitched its wagon to badly aging JC Penney (JCP)which traded ~$30 then, ~$7 now) as SZYM produces “green” wrinkle cream from algae.
SZYM also faces a massive string of red flags poised to smother its effort to create renewable oils and chemicals for various markets from its sugar-fed algae.
*Plant shutdown likely dings oil production effort
SZYM first pushed out some commercial oil and drilling lubricant in May from a small area at Brazil’s Moema Plant that the townspeople call “the annex.” CEO Jonathan Wolfson understandably trumpeted the event resulting from a joint venture with Bunge, yet warned, “We have work ahead … establishing consistent production and reliable supply and from there we’ll turn to the ramp up process.”
But production and supply problems already appear to be damaging that ramp-up. Layoffs occurred when the annex lurched to a temporary standstill while a cranky boiler was repaired, according to our source located near the plant in the sugar cane heartland in Sao Palo, Brazil.
SZYM on Oct. 9 offered the sketchiest plant update, describing production of only “modest quantities” of oils, warning:
“… downstream processes at Moema require further optimization and are not yet operating on a fully integrated basis. This is an area of significant focus and ongoing improvement."
So this suggests the plant is not scaling up according to expectations.
Indeed, some analysts seem nervous about SZYM’s future, with PiperJaffray leading the pack with its issued “Underweight” rating, writing:
“… a lack of visibility into the scale-up at Moema in terms of committed contracts, timelines, and general plant operations underscore our Underweight thesis."
The analyst also complained about “very limited visibility/obfuscation into tangible productions metrics” and added:
“High variable costs and fixed cost absorption should start to ramp quickly at Moema, against limited volumes during the plant start-up. We believe that, ultimately, low sales volumes and high fixed costs will beget poorer than expected economics in an effort to secure volumes."
Credit Suisse wrote more gently last week about giving SZYM a “neutral” rating and estimating a $1.66 loss per share this year, while PiperJaffray raised the expected net loss to $1.93.
Other viewpoints on SZYM may be found here.more...
Accelerate Diagnostics: Mistakenly Rewarded and Now Destined to Collapse?
Accelerate Diagnostics (Nasdaq: AXDX) might need to credit a “false positive” for making its stock price look so much healthier these days. Mistaken by some as a promising Ebola play, AXDX has skyrocketed in value over the course of the past few weeks – its share price, up almost 70%, escalating right along with fears of that horrific virus – even though its experimental device specifically focuses on the detection and treatment of stubborn bacterial infections instead.
“Everyone is looking … for the Ebola plays,” one bullish investor noted on StockTwits last week. “Rumor has it AXDX has the inside track on detection. Chart(s) don’t lie.”
They sure are subject to correction, though. You be the judge. Take a close look at the curious nature of the incredible rally that has AXDX just staged, and see if you still believe that its highflying stock can hang onto those inexplicable gains.
With no major developments on the horizon, AXDX actually spent most of September drifting steadily lower until Ebola began to dominate the national headlines and sent traders on a breathless chase for related investment opportunities. Down to $16.50 a share a few short weeks ago, AXDX suddenly reversed course and then proceeded to rocket all the way past $30 a share just a few days after Ebola officially surfaced inside the United States to pose a serious threat right here at home.
As a bleeding highflier that’s currently valued at more than $1.2 billion – the equivalent of 23,300 times its prior-year revenue – AXDX now looks rather dangerous itself.
Indeed, based upon any reasonable measure of its performance, AXDX actually looked wildly expensive even before it racked up those inexplicable gains. Little more than a development-stage company in spite of its lengthy 32-year history (tarnished by regulatory sanctions discussed in more detail below), AXDX has yet to even seek – let alone secure – government approval for the “BACcel” diagnostic testing system that became its primary focus at least a full decade ago. With little revenue and no expectations of actual profits anytime soon, AXDX has nevertheless managed to achieve a market capitalization so generous that it literally exceeds the estimated value that the firm once assigned to the entire market that it has long aimed to serve.
So don’t be surprised if AXDX suddenly takes a dramatic turn for the worse. With its highflying shares arguably priced beyond perfection at current levels, the stock could easily sink for all sorts of reasons. Just think of the brutal correction that AXDX might endure if the market simply discounted its stock to reflect the following:
Glu Mobile: Coming Unglued...
Kim Kardashian and crew’s fading “reign of terror,” first grabbed the imagination of mainstream media less than a year ago. It seems Ms. Kardashian’s post-baby bikini shot plastered on US Weekly’s cover sold 100,000 fewer magazines than usual and sounded the warning that the star’s popularity is beginning to drain away quicker than you can say, “Snap a salacious selfie!”
That’s downright depressing news … for Glu Mobile (GLUU).
The 13-year-old San Francisco, Calif. mobile game maker’s free game Kim Kardashian: Hollywood initially rocketed the share price to the stars from $3.78 to $7.47, higher than any time since 2007.
But most investors didn’t realize that when the company launched the game app on June 25, GLUU arrived late to the Kardashian party.
Ms. Kardashian’s fading stardom is just the beginning of an A-list of slipups that we believe make GLUU stock an ugly bet:
*SLIP-UP NUMBER 1 - Kim Kardashian has taken a dramatic free-fall since the game’s debut.
Downloads of the Kim apps have fallen, reflecting the namesake’s fading popularity. The download rank is trending downward. Kim captured number 69 overall in iPhone download ranking in early September, as the chart below shows. But the ranking has tumbled precipitously to number 163.
Confession Time: Miller Reveals That Its Stock Is Practically Worthless
Just wait until the U.S. Securities and Exchange Commission finds out about this news. After fielding so many questions from the SEC about the reported value of its assets, Miller might as well go ahead assume that regulators will probably notice some new disclosures that make the $230 million company – strapped for cash, with less than $4 million in the bank – look virtually worthless right now.
Don’t take our word for that jarring conclusion. Feel free to double-check our math. We relied on a simple formula – using numbers provided by Miller itself – to determine that the company is likely worth no more than a measly 45 cents a share.more...
Digital Ally: This Movie Has A Bad Ending
Digital Ally (DGLY) stock has soared over 386 percent amid calls for cops to wear body cameras following the Ferguson, Mo. police officer shooting of an unarmed teenager. DGLY took advantage of an unbelievable run in the stock for a small raise, a heady but ridiculous action in light of how short DGLY falls below the industry leaders.
We’ve seen this movie before and we know there is absolutely no justification for the stock’s crazy run from about $3.80 in one astonishing month to today’s nearly $20.
Here are TheStreetSweeper’s top reasons we believe this DGLY movie will end badly:
- National interest is in police body cameras, not DGLY’s old technology.
The old dash cameras – DGLY’s key product – are not even part of the national conversation.
"The recent emergence of body-worn cameras has already had an impact on policing, and this impact will only increase as more agencies adopt this technology,'' said Chuck Wexler, executive director of the Police Executive Research Forum, author of a recent report on the use of police body cameras.
Yet, the in-car video recording system constitutes 90 percent of DGLY’s already falling revenue and rising operating losses of about $1 million.
- Old technology = falling revenue.
DGLY’s in-car video revenue will likely continue to erode due to superior, cheaper body cameras offered by well-known vendors such as stun-gun maker Taser International (TASR), a profitable company up 43 percent since Ferguson to $17 plus change.
CNBC’s Jim Cramer said police wearable video will likely become the new normal and that market is owned by Taser.
Wearable cameras provide superior video footage that provides up-close and point-of-view, non-tamper recording compared with in-car video.
Indeed, DGLY’s old technology is clearly already feeling the pressure. Describing the company’s decline in gross profit, its last quarterly filing said:
“However, we are experiencing increased price competition and pressure from certain of our competitors that has led to pricing discounts on larger contract opportunities. We expect that this pricing pressure will continue as our competitors attempt to regain market share and revive sales and that it will have some negative impact on our efforts to improve gross margins during 2014.”more...
Mandalay Digital Group: An Overhyped Master of Positive Spin?
Give Mandalay Digital Group (Nasdaq: MNDL) credit for this much, at least. While the bleeding technology firm still needs to prove itself, the company has definitely mastered the art of positive spin.
A recent penny stock that spent years constantly reinventing itself in a desperate attempt to merely survive, Mandalay may have just pulled off its most impressive transformation yet. Suddenly worth more than $200 million – before clearing its first dime – Mandalay has practically doubled in value over the course of two short weeks with the help of some tantalizing, if temporary, hype.
Just don’t expect those breathtaking gains to actually last. Consider the following:
- Institutions continue to steer well clear of the wildly speculative stock, with gullible retail investors loading up on the pricey shares instead.
- A major investor, well aware of the bullish hype reflected in the expensive shares, has chosen to dump a mountain of the stock in recent weeks.
- Mandalay has yet to provide any major details about the celebrated deal that sparked its powerful rally, allowing the hype to build -- and further bolster its handsome gains – ahead of a looming update.
- With its stock rocketing to a multi-year high, Mandalay seems very tempted to carry out another dilutive secondary offering after practically doubling its share count over the course of the past year.
- Given all of the cash that Mandalay spends to finance its bleeding operations, the company sure could use some extra money to cover its future expenses, too.
Worth barely $3 a share ahead of its latest quarterly miss, Mandalay has since rocketed to a multi-year high of $6 a share after announcing a celebrated deal with Verizon (NYSE: VZ) and delaying the release of crucial details while the ensuing hype sent its stock on a powerful tear. With Mandalay encouraging investors to hope for the best, they have responded by allowing their imaginations to literally run wild. Clearly sold on the stock and expecting it to gain even further ground, one bullish hedge fund manager recently stepped forward to ridicule the so-called “moron” who chose to slash his massive position in the company despite exciting news of the celebrated Verizon deal.
“Who the hell is selling at these prices in light of this news?” the hedge fund manager recently demanded before declaring, “Why should we care?
“Worrying about who is selling or how much more is coming for sale is extremely short-sighted when we know we have a deal in hand that completely changes everything. (So) waiting for the ‘cleanup’ trade is rather pointless, given where it should be trading when the world wakes up to what is occurring …
“The size and the scope of the VZ announcement is almost too big to fathom. But make no mistake: It is huge.”
Really? How do you know? So far, even Mandalay itself has yet to determine – or at least divulge -- the true value of that mysterious deal.
You’re probably right about one thing, however. The identity of the recent seller doesn’t really matter. Ask yourself a far more relevant question: Why did that big Mandalay shareholder chose to dump all of that stock instead of holding out for even sweeter gains or – better yet – buying some more of the highflying shares?
Let’s go back to the conference call that sparked this incredible rally in the first place and search for some possible hints. An expert at translating overblown hype, TheStreetSweeper has carefully read between the lines to uncover plenty of revealing clues.more...
FuelCell Energy: Will The Plug Be Pulled On This Overvalued Company?
If only we lived in that magical world where we could scrape up leftovers from Sunday dinner, plop them into a device, add a dollop of fat and presto – the air conditioner churns on uninterrupted. And no messy rendering required between steps.
In that world, FuelCell Energy (FCEL) might also become profitable. Or at least its stock price would rise and fall based on FCEL itself, rather than the misconceived mirroring of Plug Power. Most of all, FCEL would not be poised to lose its biggest customer.
But this is the real world. And it’s inconceivable to TheStreetSweeper how a company with multiple issues plus an accumulated deficit exceeding $797 million could be worth anything approaching $1 billion.
“Anytime you’re a single-dollar or two-dollar stock, there’s a reason you’re a single-dollar or two-dollar stock,” said Jake Dollarhide, CEO of Longbow Asset Management. “They announced they’re cutting costs. Well cutting costs is not what you always want to hear – especially when it’s a new concept company that doesn’t have mass scale at this point.”
The stock has a lot of people spooked. During “Lighting Round” Tuesday on CNBC, analyst Jim Cramer said this about FCEL:
“Ahhh, Fuelcell! I mean, you know, these are just total rank speculation stories. I can’t go there,” Cramer said.
“I’ve got a lot of solid companies that have really good fundamentals that are inexpensive,” he added. “I’m not going FuelCell.”
Indeed, this is a company that is:
- Poised to lose its biggest customer.
- Riding high on a misconceived notion.
- Selling stock. And we wouldn’t be surprised to see more.
- Can’t seem to scale.
- Losing money faster than you can say, “Fool cells.”
- Sporting a completely unjustified market cap.
We see stubborn challenges for the Danbury, Conn.-based company that makes and sells fuel cells that generate electricity.
Synthesis Energy Systems: Running Out Of Gas
Synthesis Energy Systems (SYMX) is trying to hit the gas but the coal gasification company’s problems keep slamming on the brakes. TheStreetSweeper believes its many issues will continue to build into a swerving, stop-and-go ride sure to leave investors screaming to get off.
Key aspects of the Houston company and the coal gasification business have convinced us that the worst is not yet behind SYMX or those brave souls still holding onto the stock.
It’s been just eight months since SYMX restarted its plant in China after a long, painful 2-year shutdown that left SYMX’s market cap practically sitting on empty. Finally able to sell the product, the company’s stock price revved back up to reasonable levels before taking a recent, brief U-turn on some big trades and rumors that the co-founder and chief commercial officer has grabbed his truck-load of shares and taken the nearest exit. The stock price, however, is now recovering.
But the stock value likely will once again hit the skids because we believe SYMX will soon have to shut down its ZZ plant again.
The company offered a rebuttal by email through spokeswoman Susan Roush.
“As for your query about current methanol prices, when commodity prices are lower such as they are now, the plants are able to operate in different modes and continue to generate revenues,” she said.
While TheStreetSweeper believes it could operate in different modes, we do not believe it could generate any significant revenues by doing so - especially considering its track record. A company filing says this:
“The Supplementary Agreement also provides that, to the extent Hai Hua has an unscheduled shutdown, and the plant continues to operate on standby during such period, Hai Hua is still required to pay the energy fee to the ZZ Joint Venture.”
So the plant would be operating and, under that scenario, the revenue could be expected to be the undoubtedly insignificant fee.
The “clean coal” company sells its coal-based syngas technology and equipment to its partner in China. Zao Zhuang, or ZZ, uses the syngas with coke oven gas to produce methanol, which is used to produce more complex chemicals or blended with gasoline for motor fuel. Naturally, ZZ wants as high a price as possible from its methanol. And a high price is necessary because operating expenses are so high.
Now, methanol prices are hovering around a 2-year low, threatening to once again shutter the plant. SYMX stands to face not quite the revenue drop to zero that it suffered last shutdown, but a significant sales decline all the same.more...
Sphere 3D: A Ticking Time Bomb Set to Self-Destruct?
* Editor's Note: The following article is the latest of four investigative reports that TheStreetSweeper has published on Sphere 3D, as it continues to move forward with its ongoing investigation of the company. TheStreetSweeper plans to share any major, new discoveries that it uncovers during the course of the research process.
Sphere 3D (Nasdaq: ANY; TSXV: ANY.V) can thank a former regulatory target with a lousy trading record for much of the buying pressure that has allowed its highflying stock to resist the pesky forces of gravity.
With Sphere 3D ranking as a standout performer in the miserable portfolio that determines the size of his annual bonus, Pinetree Capital CEO Sheldon Inwentash has repeatedly stepped forward to bolster the value of that risky investment by purchasing much of the stock that others have understandably chosen to sell. Just go back a few weeks ago for a particularly striking example. When TheStreetSweeper published the latest in a string of disturbing reports on Sphere 3D earlier this month, Inwentash responded by purchasing so much stock that he literally wound up buying more than half of all the shares that changed hands on the open market that day. (The next section of this report presents a full account of those trades in graphic detail.)
A former penny stock that barely topped the 50-cent mark as recently as last summer, Sphere 3D rocketed all the way to a record-breaking high above $11 a share with the help of that powerful buying spree.
Sphere 3D better hope that it fares a whole lot better than most of the other stocks that Inwentash has purchased after Pinetree blew millions on their ill-fated shares, however. Just look at the dismal performance of the investments that cost Pinetree the most. Even with Inwentash splurging on all of those stocks himself – often at prices well above those fetched on the open market today – most of them still trade in the low end of their 52-week range.
Advanced Emissions Solutions (ADES): Clean-up Solutions Company Faces Its Biggest Mess Ever - Itself
Investing in Advanced Emissions Solutions (ADES) is a little like buying land in Florida, sight unseen.
It looks incredibly gorgeous, “green” and tempting at first. Yet after digging deeper, you discover you’ve bought swampland infested with alligators flashing toothy grins. That’s what TheStreetSweeper found in this Highlands Ranch, Colo. holding company specializing in clean solutions for coal-fired power plants.
But with deeper inspection, ADES’ alligators look awfully ugly and hungry. The company stands knee-deep in class action lawsuits alleging securities law violations and “false and/or misleading” statements tied to financial reports that must be restated – and a NASDAQ delisting threat that ADES can’t seem to shake.
Unfortunately, ADES very efforts to try to clean up three quarters – and likely more - of unreliable, consequently misleading financial statements are already snake-bitten.
ADES has hand-picked a rogues’ gallery of handsome men to fix its financial mess and restore investors’ confidence. We’re calling it a rogues’ gallery because this line-up, includes:
*Directors of companies wallowing in the risky penny stock world.
*Co-founders and former top executives of an emotion-charged company tottering just this side of crash and burn.
*Leaders who suddenly ran out on a company where delinquent financials almost killed its NASDAQ listing.
*Audit team members who oversaw ADES’ messy financials to begin with.
Yet these are some of the very people ADES selected to fix its financial reports. We’ll explain the details later in this report.
An ADES representative, who is traveling, plans to interview with TheStreetSweeper so we can write a follow-up.
Investors may find various viewpoints on ADES here.
Let’s take a closer look at issues that make the ADES denizen-infested swampland look so treacherous to today’s investors:
Sphere 3D: Rewarded for a Shotgun Wedding That's Doomed to Backfire?
Maybe Sphere 3D (TSXV: ANY.V) finds some way to look busy if it actually expects company. The bleeding technology firm seemed almost lifeless when TheStreetSweeper paid a surprise visit to its Canadian headquarters on a recent weekday, however, arriving fairly late in the morning to find the executive suite empty and just a tiny handful of underlings inside the entire facility.
To be sure, Sphere 3D looked nothing like a $250 million corporation that had just offered a fortune to merge with a far more established – but increasingly desperate – company by using its highflying stock as valuable currency.
With little (if any) sign of activity two hours into a regular workday, Sphere 3D barely even seemed open for business at all. The poor receptionist who actually bothered to report for duty on time must have felt understandably bored.
No telephone calls to answer from patient customers eagerly awaiting the overdue Glassware 2.0 “virtualization” platform that Sphere 3D has trumpeted as a revolutionary breakthrough – set to take the challenging market by storm -- for years. No meetings to orchestrate with important clients seeking to order the V3 storage solution that Sphere 3D inherited from a dinky firm accused of blatantly stealing its assets before it officially changed hands. No appointments to keep with hopeful investors willing to place risky bets on Sphere 3D, either, especially now that the bleeding rollup company trades at a staggering 250 times its prior-year pro forma sales.
Nothing but a nosy reporter from TheStreetSweeper marveling at the outdated technology that Sphere 3D had chosen to prominently display in its front office – a collection of old-fashioned calculators, a leftover Sony Walkman, an early version of the Blackberry that looked downright “modern” in comparison to the rest – since the company has yet to make a name for itself by launching a proven commercial product of its own.more...
TechTarget: Google's Panda Crushes Visibility
TechTarget (TTGT) has peered into the gaping jaws of death.
And those jaws belong to … a Panda.
Not China’s bamboo-chomping bear. Rather, it was Google’s Panda update designed to snuff out low quality content from Google’s top search results pages.
Many companies have suffered crushing declines in Google impressions caused by last month’s Panda update – and corresponding losses in stock value.
Now, TheStreetSweeper has found an overlooked Panda victim - TTGT.
Shares of the Newton, Mass. company – which is focused on drawing traffic to generate IT leads - hit this year’s high of $8.46 on June 10.
However, the market was unaware that weeks earlier the company lost more than 33 percent in search visibility, according to a list of losers and winners.
With TTGT’s significant decline in SEO visibility – which happened around the same time of a 5-million-share secondary offering - we think the market has missed a crucial factor.
We believe the stock faces much more significant consequences than the 28 percent stock value slashing endured by a peer company caught by Panda.
In a statement released to TheStreetSweeper, TTGT said organic traffic remains ahead of last year.
“Our experience with the recent Google algorithm changes is consistent with what we’ve seen on previous algorithm changes over the almost 15 years that we have been in business. We operate over 100 websites, and in the immediate aftermath of a algorithm change we see some sites traffic increase and others decline.”
“On a broader point – our experience is that there is an enormous amount of fluctuation after a major Google algorithm change.”
TTGT went on to say that the company has adapted to the changes and established a successful track record in terms of how the changes play out.
If so, we’re not sure why insiders have been selling. Regardless, investors may find various viewpoints on TTGT here.
WHAT HAPPENED TO IMPRESSIONS?
Jealously guarding its top search market share, Google began using code-named Panda in 2011 to filter out poor content so that higher quality content would rise in search rankings.
Google’s leader of the Webspam team, Matt Cutts, tweeted the launch of the Panda update on May 20. Within days, many websites watched as the dreaded drop in organic rankings turned into reality.
Digital coupon marketer RetailMeNot (SALE) fell victim to Panda’s 4.0 wallop, according to Searchmetrics. SALE suffered a huge loss in its Google impressions and, within days, a record decline in stock.
SALE plummeted more than $8 – 28 percent – in just a few days. About three weeks later, SALE still has not been able to climb back to its old highflying $30 level.more...
Bio-Reference: A Scary Review of Its Own Genetic Test
No wonder Bio-Reference Laboratories (Nasdaq: BRLI) has found itself waiting months for health insurers to review – and, in many cases, ultimately reject – big-ticket claims for its lucrative specialty tests.
Take a look at InheriGen, the flagship panel sold by the company’s booming genetics division, for a rather obvious clue. A $3,600 screening tool packed with tests for all sorts of wildly obscure inherited disorders – far exceeding the handful recommended for the sound practice of medicine – InheriGen literally costs so much that it can easily double, if not triple, the normal cost for comprehensive prenatal care. Even GenPap, the notoriously elaborate -- and expensive -- panel aggressively marketed by the company’s gigantic women’s health division – looks somewhat modest in comparison, despite all of the controversy surrounding that glorified Pap smear.
“The reason why Bio-Reference can get away with this,” explained one of several former sales representative who volunteered similar stories, “is because the company trains you to routinely say, ‘There is no risk to the doctor or the patient. If the insurance company doesn’t pay, we’ll reduce the bill.’
“Some reps would receive up to 15 calls a day from patients upset about getting stuck with a $2,000 bill for GenPap, when they just wanted a regular Pap smear. We dealt with complaints like that every day. It was our job to take those calls and reduce the bill to $195 (a price resembling those charged for more traditional Pap smears.) If a patient sounded really angry – and we felt worried that they might report us – we could zero out the entire balance …
“Then Bio-Reference would just write it off. They wrote off a lot of business when I was there.”
That sort of business strikes many doctors -- including a prominent member of the National Physicians Alliance -- as a pointless, if not dangerous, waste of precious resources in the first place. Even before former NPA president Dr. Cheryl Bettigole learned that Bio-Reference commands thousands of dollars for its popular Inherigen and GenPap tests, she felt compelled to sound a loud alarm in The New England Journal of Medicine about expensive screening tools that look almost cheap in comparison. So Dr. Bettigole likely meant business when she responded to that jarring discovery with plans to approach NPA policymakers about taking a public stand against the even pricier screening panels that Bio-Reference has successfully pitched to so many oblivious physicians as phenomenal deals.
“It’s demonically brilliant,” Dr. Bettigole bluntly declared upon hearing the crafty sales pitch relayed to TheStreetSweeper by former Bio-Reference insiders once forced to use that deceptive marketing strategy themselves. “I would like to send information about these tests to our policy committee. This is exactly the kind of issue that the NPA looks at …
“We have an OB/GYN (obstetrician/gynecologist) on our committee,” Dr. Bettigole further volunteered. “ACOG, the American Congress of Obstetrics and Gynecology, is wonderfully productive,” too.
Talk about a possible disaster.
As a lab that depends heavily (if not entirely) on brisk sales of big-ticket screening panels to fuel its outsized growth, Bio-Reference can hardly afford for an influential medical society to publicly denounce the flagship panels marketed by the very specialty divisions responsible for so much of its remarkable success. With health insurers already intensifying their scrutiny of its lucrative specialty tests, a trend vividly illustrated by the recent surge in its days sales outstanding (DSOs) and its bad-debt expense, Bio-Reference better hope that it can avoid pesky interference from powerful – and increasingly cost-conscious – medical societies that often play a vital role in shaping coverage decisions.more...
Sphere 3D Merger Threatens to Eat Companies Alive
The two unprofitable companies last week announced an all-stock deal worth over $80 million that within the next four months would hand Overland assets to its current partner, Sphere 3D. Canada-based technology company Sphere 3D trades on the Canadian exchange as “ANY.V” and over-the-counter as “SPIHF.”
Overland considers Sphere 3D in such horrible shape and of so little promise, it acknowledged in its Securities and Exchange Commission filings that ANY.V is entirely capable of pulling down wounded Overland.
Here are a couple highlights straight out of California-based Overland’s 10-Q, filed the same day ANY.V made an astounding offer - a 53 percent premium (~$4.40 offered for shares that closed at $2.90) to buy out Overland:
* “Sphere 3D may not be able to achieve or maintain revenues or profitability”
* “Limited trading of Sphere 3D’s stock on the TSX Venture Exchange”
Overland crammed its filings with shockers guaranteed to worry any investors who might assume ANY.V has found a wealthy sugar daddy to revive the company (though the merger depends partially on ANY.V setting up “bought deal” financing in order to loan Overland $5 million.) These shockers include:
*Overland has $2.4 million cash and about $4.9 million in short term investment – and got $1.7 million cash from its acquisition of Tandberg four months ago.
*Though revenue reached $20.2 million, recurring losses and negative cash flows “raise substantial doubt about its ability to continue as a going concern.”
*Net loss to Overland shareholders is 44 cents. (Net loss of ANY.V shareholders is 4 cents.)
Under the terms of the merger, ANY.V will issue 9.4 million shares on closing, expected sometime between July 1 and September 30.
At recent prices, the terms would spike ANY.V’s market cap from about $190 million to an even more outlandish $270 million.
So that’s $270 million for a Canadian overhyped, over-the-counter zombie company propped up by a suffering San Diego misfit.more...
Sphere 3D: Cloud Company Can’t Rise Above Hype, Mistakes And Poor Management
From its rocky beginnings as a fake mining company to its absurd overpayment for a little two-man shop, Sphere 3D Corp. (ANY.V) has signaled the true meaning of the “D” in its name: “Deep six” this stock before it’s too late.
The Canadian technology company has gone screaming into the stratosphere. The stock smashed new 52-week highs five times in three months and is trading on the TSXV Canadian exchange as “ANY.V.” Now at around $9, the stock is also listed on the alternative trading system OTCQB as “SPIHF.”
But research by TheStreetSweeper indicates all the screaming will soon be done by ANY.V investors pushing and shoving and galloping for the exits.
What’s behind all the recent excitement surrounding the stock of a company that reported zero revenue last year? Blatant, baseless promotions by a company desperate to get listed on the NASDAQ’s subsidiary OMX. Additionally, retail investors anticipate that ANY.V’s earnings report later this month might finally show some commercial revenue for its emulation and virtualization product. The patent-pending technology is designed to make applications run on a cell phone, iPad or other device as easily as they run on a person’s computer at home or work.
But disaster lurks. And here’s how TheStreetSweeper sees it breaking out:
- Hype at its best. Bought-and-paid-for promotions artificially kick the stock price over the moon.
- Currently no real commercial product.
- No organic sales. ANY.V pays dearly to claim an acquisition’s puny sales as its own.
- Looming options and warrants poised to hit the market.
- Large salaries for inexperienced execs, little money, big cash burn with a need to burn multi-millions more. We believe it’s all too clear - dilution is imminent.
ANY.V has not responded to TheStreetSweeper's request for comment.
ANY.V proudly links to not one - not two - not six - but nine articles in How to Find Big Stocks. These promos of ANY.V seem just a little like the kind of material sent out by Jonathon Lebed, a stock promoter and newsletter writer noted for his youthful brush with the US Securities and Exchange Commission and his disclosure urging people never to trade on his advice unless they’re prepared to lose the entire investment.
In fact, ANY.V is so desperate for attention, the company has taken on its own promoter. That hired gun is USA Investor Link, pulling in $10,000 monthly plus about $2.8 million in stock options.
CEO Peter Tassiopoulos issued a statement in March 2013 about hiring USA Investor Link to address the “increased interest we are receiving from the investment and business community.”
Let’s just take a look at USA Investor’s previous clients… Whoa – maybe ANY.V should have done some due diligence before peeling off investors’ hard-earned dollars to pay the two-man USA Investor Link.
Almost exactly a year before ANY.V’s announcement about its USA Investor deal, Canada-based NWM Mining Corp. (NWMMF) issued its own statement about hiring USA Investor “due to a significant increase in the level of interest from the U.S. Investment community …” If anyone’s interested now, a share of NWM Mining costs just a fraction of a penny.more...
Amyris: Onerous Deals, SEC Filings And Extreme Insider Selling Rough Up This Biotech
Amyris Inc. (NasdaqGS: AMRS) has fallen victim to loan sharks wearing black hoodies, steel-toed boots and perfectly wicked sneers, its SEC filings suggest.
Now the California biotech’s new filings show it’s gotten stuck with a $25 million debt financing deal spiked with – don’t you love the word - “covenants” so draconian they’ll set your hair on fire.
Don’t take TheStreetSweeper’s word for it. Take the words from the company’s recent filing with the US Securities and Exchange Commission. With that costly loan deal and others in its frayed coat pocket, poor AMRS is in such a fix it may:
“…need to issue … discounted equity, agree to onerous covenants …”
Now, AMRS may be in an even worse fix as the company approaches its quarterly earnings call scheduled for Thursday, May 8. The company has reported worse earnings numbers over each of the past five quarters than those anticipated by analysts – and those experts expected earnings losses as bad as 29-to-45 cents. Analysts this quarter expect a loss of about 28 cents per share.
Insiders and others may feel their trigger finger quivering right now. AMRS is trading at about $3.35 per share yet there are options as cheap as $2.15. With 76.4 million shares outstanding, an astonishing 54.7 million shares could potentially hit the market.
“The upside of any equity investor would be severely limited by these options,” said an analyst who requested anonymity.
Despite all this – plus the fact that the CEO himself has eagerly sold off some $8.9 million worth of AMRS shares and evidently has remained equally busy counting proceeds from his days as prior director of a dying biofuels company – AMRS chief executive John Melo recently asserted that the company has quite the 2014 business plan.
Mr. Melo, however, forgot to tell investors the SEC-filing details of the business plan that form the company’s exit strategy.more...
Shock therapy: Cyberonics link to deaths and injuries
Judy Bowling could easily complete the night shift at a New York medical clinic, drive the 20-mile commute back home, yank off her favorite green scrubs and grab a few hours of sleep. After school, the single mom and her young daughter would often jump in the car so the child could spend the night with Ms. Bowling’s parents, giving the two some cherished “girl time” during the drive.
But life changed radically after Ms. Bowling had a “VNS” device by Cyberonics (Nasdaq: CYBX) implanted inches above her heart to try to control her epileptic seizures with tiny electric shocks transmitted to the brain.
She is one of thousands of patients who have been implanted with the device that Dr. Peter Barglow terms, “completely worthless.”
“I’d never dream of subjecting anyone to that sort of nonsense,” said Dr. Barglow, an MD with more than five decades in the psychiatry field, now handling a busy practice in Berkeley, Calif. After extensive examination of the issue and VNS studies, he said he considers any association with VNS irrational.
In Ms. Bowling’s case, the seizures became worse, and she quickly spiraled downward both physically and mentally.
Ms. Bowling’s experience is one of more than 9,000 Cyberonics-linked injury reports submitted to the US Food and Drug Administration from 1998 to this month.
In fact, more than 1,980 Cyberonics-linked death reports were uncovered in our investigation.
These “adverse events” resulted from the device made and touted by a company staggering beneath two extensive FDA warning letters and targeted by a US Senate investigation into effectiveness and safety concerns. And the heat’s still on as this company faces a false claims lawsuit that we believe has ample potential to move forward.more...
Ocean Power Technologies (OPTT): Wave Goodbye To This Wave Power Company
Ocean Power Technologies (Nasdaq: OPTT) might blow its rivals out of the water – if only it could deliver projects like it delivers regurgitated news.
OPTT stock was swimming with the bottom feeders when the company announced a multimillion-dollar Australian deal in January with the following deceptive headline:
Bam! Shares jumped with the announcement by 52.9 percent in premarket trading to $3.38.
But here’s the deal: OPTT had already announced the grant - five years ago. Here is that headline:
The January press release actually announced Aussie funding from the original grant would be available for phase one and two, plus OPTT would now have to meet more milestones. So this carefully crafted news release isn’t really surprising, positive news at all. The market - eager for a hint of good news - took off and ran with it.
“Fool the investors” works this week, too
Buoyed by previous misleading regurgitated announcements, OPTT tried it again Tuesday.
This time, the regurgitated gem reads:
Many people mistook the announcement to mean that OPTT was getting a fresh batch of funding. The sound of the Australia project apparently finally running toward its power-wave goal - combined with the sound of investors pushing the “buy” function - was truly deafening.
The stock price exploded almost 9 percent to $4.06.
What was wrong with this announcement? First, the $4.6 million (US dollars) grant was already assumed because execs in March said, Australia, with conditions attached, would fund part of the first phase.
This is not new. And it is not new funding. In fact, the release states that grant revenue will be accounted for later, indicating OPTT doesn’t dare count it now because the company is unlikely to come up with the required matching money.
Second, the misleading headline ignores the real news that OPTT is legally required to disclose in its 8-K, US Securities and Exchange Commission filing. That real news is that the Oregon project is officially Dead Sea debris.
The US Department of Energy has terminated the remaining teeny, single-buoy contract with OPTT because the company couldn’t come up with enough money.
Key wording in the new SEC filing is: “The Company and the DOE are discussing the steps necessary to close out the project.”
OPTT’s bad habit of regurgitating “news” is just another surface wave in a growing tsunami of issues surrounding the company that has been trying since 1994 to turn electricity-generating ocean wave power into a real business.more...
MiMedx (MDXG): Not What The Doctor Ordered
Human placenta products peddler MiMedx (Nasdaq: MDXG) is handing out company stock like candy to doctors who “evaluate technologies” or act as consultants, TheStreetSweeper has learned.
The company has doled out roughly 1.2 million shares of stock and options to its influential doctor friends – shares now worth more than $7 million – as its chief executive, Parker Petit, prepares to go on trial perhaps as early as next month for an alleged insider trading scheme.
Despite that, the company stock price is screaming, shoving the market cap into the stratosphere. The company is now valued at about $740 million, much higher than the entire “skin substitution” market estimated at $500 million.
Paid to do what?
MiMedx uses doctors in speaking bureaus, consulting and research. But filings also say doctors educate others about “the efficacy and uses of our products.” MiMedx’s business turns mothers’ placental membranes into “EpiFix” material used to cover injuries such as burns and diabetic foot sores, as well as “AmnioFix” for internal coverage uses such as spinal surgery and tennis elbow.
The company’s filings – pages 14 and 15 – describe some doctors’ duties this way:
“… speaking to payers about our products in support of our reimbursement efforts.”
The company also works with doctors “who may order our products or make decisions to use them,” according to this filing.
TheStreetSweeper asked the company for more details about the medical advisory board, including whether MiMedx encourages doctors to use their products. We got some answers back by email.
“Our selection of advisory board members is unrelated to their use of our products,” said the company’s lawyer, Roberta McCaw.
MiMedx uses doctors to help deliver exciting business deals while it tiptoes past kickback and false claims laws, suggests page 28 of this filing. But news reports show even big pharma sometimes fall down the slippery slope into an embarrassing, expensive legal hole that MiMedx could ill afford.
Just last November, Johnson & Johnson agreed to a $2.2 billion deal to settle government charges on false marketing claims and paying kickbacks to doctors.
Doctors get cheap stock
For investors, there’s also a personal piece to the problems inherent in MiMedx’s fraud lawsuit-saddled chief executive’s use of the medical advisory board.
Unlike the average investor, some lucky doctors have had the option to buy their stock for mere pennies-on-the-dollar. These doctors also get paid on a services rendered basis, though the company lawyer wouldn’t give details.more...
Will MiMedx and Its Hotshot CEO Both Go Down in Flames?
MiMedx (Nasdaq: MDXG) better hope that its precious leader can work the same kind of magic on the federal judge who will soon decide his fate as he has on the dazzled shareholders who have placed so much faith in his word.
With its treasured CEO Parker “Pete” Petit set to face trial on insider-trading charges as early as next month – and its shareholders largely oblivious to both the proximity of that courtroom battle and the gravity of its final outcome – MiMedx desperately needs that looming verdict to favor its popular chief and spare its highflying stock from the trauma of his stunning exile. After all, as graphically illustrated by the horrific 70% loss that it suffered back in September, MiMedx paid a staggering price the last time that the market felt blindsided by a major regulatory scare. Now that MiMedx has fully recovered from that nasty wound to reach even loftier highs – achieving a generous $740 million market value that literally eclipses the $500 million value recently assigned to the entire “skin substitute” market that the bleeding firm serves – the company sure would hate to plunge yet again on an overlooked danger capable of erupting into bombshell headlines like these:
“SEC COMES OUT SWINGING IN HIGH-STAKES TRIAL AGAINST MIMEDX CHIEF”
“HIS CAREER ON THE LINE, CEO STRUGGLES TO EXPLAIN SUSPICIOUS TRADES”
“REGULATORS PREVAIL AFTER PURSUING VETERAN EXECUTIVE FOR YEARS”
“HIT WITH OFFICER/DIRECTOR BAN, TURNAROUND CEO FORCED TO RETIRE”
“MIMEDX FALLS FROM LOFTY HIGHS AFTER POPULAR CHIEF FALLS FROM GRACE”
To be sure, the U.S. Securities and Exchange Commission seems bent on a victory that would make those jarring headlines come true. Convinced that Petit tipped off a friend about the imminent buyout of the last public company that he ran, the SEC filed charges against the veteran corporate executive back in early 2012 and – after soundly defeating his motion to dismiss the charges that he actually bothered to challenge – looks fully prepared to move forward with a high-stakes trial that could literally end his entire career.
In a vivid display of its stubborn determination, the SEC has invested years in a case against Petit based upon suspicions raised by a pair of trades that date all the way back to 2007 and involve a relatively modest windfall that never personally benefited the seasoned executive at all. Still, the SEC highly doubts that his longtime friend simply lucked out by gambling half of his net worth on Matria Healthcare (the company that Petit led at the time) ahead of a generous buyout offer to score an easy $94,000 jackpot as a total novice playing the market for the very first time. Seeking to nail the veteran officer for that suspected leak and prevent him from committing any future offenses, the SEC has proposed a severe punishment that – by stripping Petit of the right to serve as an officer or director of any publicly traded company – threatens to drive the popular MiMedx leader right out of the executive suite.
MiMedx did not respond to requests from TheStreetSweeper seeking input from the company ahead of this story. The stock sure took a curious hit, suddenly falling on a notable surge in trading volume, after TheStreetSweeper alerted the company about the article, though.more...
Amyris (AMRS): Why These Sweet Dreams Should Keep Investors Up At Night
One day, the dream goes, people might splash their wrists with perfume made from it. They might slather their faces with it, drive to work on tires made of it and even take off in a jet fueled by this stuff made by engineered bugs – or microbs.
And 6,000 miles to the north, at the Amyris headquarters in Emeryville, Calif., executives churn out reasons for investors to cling to that dream.
So, they pour out creative phrases like “collaboration revenue” and “collaboration inflows” and generally stretch the boundaries of believability as the company tries to maintain its stock price.
TheStreetSweeper is here to cut through the gibberish and explain why we don’t like Amyris.
This company is light on cash, heavy on loans – practically giving itself away to its partners in order to stay afloat. The chief financial officer and three other officers recently fled – a classically bad sign - while the remaining executives are left to try to breathe life into a business plan currently thrashing in its deathbed.
Which brings us to Amyris’ funny numbers and funny wording.more...
Unilife Corporation: Why this hypodermic needle company keeps jabbing investors
Pre-filled syringe company Unilife (UNIS) is losing millions and management is handing investors a minus 190 percent return on their money.
But its executives are living like kings.
They can thank the CEO’s brand of showmanship that puts P.T. Barnum to shame and likely contributes to the unwarranted share price that’s hovering around $4.60.
And they can also thank their compensation committee with its laugh-out-loud justification for overpaying the folks running a company that can’t seem to turn a dime in profit.
The lowest paid of the bunch is CEO Alan Shortall - the billiard ball-bald Aussie who practiced pitching Unilife to his ex-girlfriend over a decade ago by promising, according to court records, “You will be a rich woman …” after investing in the company.
Last year, Mr. Shortall received more than $690,000, including the $420,000 base salary and almost $45,000 to buy and maintain a vehicle (compared with $6 million including unrealized stock awards the prior year).
Including hefty bonuses and stock, the other four officers last year received about $1 million apiece.
Even more stunning is what UNIS pays its directors.
In that period, the unprofitable company generated just over $8 million in revenue.
So the non-employee directors handed themselves about 25 percent of the company’s revenues.
And new retainer fees and other compensation kicked in last December. Each director’s annual retainer fee alone jumped $10,000 to $35,000. All courtesy of the shareholder-approved pay scale created by the three directors on the compensation committee.
The perks for all directors include an extra 1,000 bucks whenever someone has to travel more than two hours to a meeting.
Additionally, each director will receive 35,000 UNIS shares every year for the next three years. In today’s market, that equates to just about $160,000 extra yearly compensation to directors.
Just for attending a few meetings a year.
*How does UNIS explain this level of self-enrichment?
An entertaining piece of prose gently tucked into the SEC filings tells the tale.more...
TherapeuticsMD (TXMD): Is it really a $1 billion company?
Everybody wanted a piece of TherapeuticsMD (NASDAQ:TXMD).
The little pharmaceutical company attracted investors ranging from a “consultant” whose patience paid off in multiples to an ex-football player with both an MBA and a head lice-treatment company.
Now, three years later, the company stock is booming even though it’s way too early to know whether the vitamin company can ever pull off plans to launch hormone-based drugs for women.
Can it overcome ties to people with a history of securities problems and fallen companies?
Can it overcome huge losses, daunting litigation, and indistinguishable products?
Can it rise above a series of head-scratching business deals?
And can a reverse merger company selling only $2 million in vitamins really be worth almost $1 billion?
INSIDERS SHOULD BE CLAMMERING TO SELL MILLIONS
Here’s the key to a daunting near-term risk. Common sense dictates that as soon as the quiet period ends the first week of March, smart insiders will begin selling some of their stock – about 34 million shares – like crazy.
The stock price is howling near record TXMD highs and they’ve got shares to sell, including a truckload of options and warrants that they can exercise for as little as a quarter apiece.
That stash includes roughly 22 million shares in options and warrants just waiting in line to be cashed in.more...
Miller Energy: Digging Itself into Another Deep Hole?
Miller Energy Resources (Nasdaq: MILL) sure has proven one thing to the world, and it’s not the tremendous value of the discarded oil reserves that the company picked up for next to nothing after more sophisticated players said, “No, thank you,” either. Rather, as a bleeding energy firm buried underneath a mountain of expensive debt – with that weighty burden set to grow even heavier in a matter of weeks – Miller has by now established that, if nothing else, it certainly knows how to dig itself into a dangerous hole.
Take the daunting challenge that Miller will face next month, just for starters. Desperate for cash earlier this year and now on the hook for the promises that it made in order to secure those essential funds, Miller must somehow find a way to come up with $75 million by the end of January in order to avoid loan-shark interest rates (approaching the 20% mark) on every bit of the bank debt that the firm currently owes. For a company with barely $20 million to its name right now – and commitments to cover not only the double-digit interest payments that it already owes to both its lenders and its preferred stockholders but also the $60 million that it just pledged for a major acquisition to boot – Miller can hardly afford for its hairy predicament to grow even worse at this point.
To Chapman Capital Founder Robert Chapman, the former boss of Miller President/Acting CFO David Voyticky and an obvious skeptic of both the company and its senior management team, Miller barely even resembles a normal energy firm since it focuses so much of its attention on raising capital that it seems to market its stock as its primary product while selling a little bit of oil on the side.
“The gross production numbers are not big – they’re tiny – and the company is still cash-flow negative (from operations combined with necessary capitalized investments), so it has to keep selling this story about its monstrous reserves,” Chapman recently noted during a revealing interview with TheStreetSweeper about the five-month period when he employed Voyticky as a partner at his firm and found the future Miller executive too incompetent (or unwilling) to fulfill the transactional activist, non-investor relations duties required of that post.
“In the meantime, just look at the company!” Chapman declared. “It’s a preferred stock-issuance machine that seems to be more in the business of raising money than making money. And to me, it looks like a stock that's driven by a myth.”
Like other dubious investors, Chapman refuses to buy that story. Indeed, Miller strikes the fund manager as a dangerous company that has placed its trust in an executive that (based upon his own firsthand experience) lacks any substantial skills outside of his ability to raise capital by "smooth-talking investors and lenders into parting with their funds."
“With Voyticky involved,” Chapman bluntly proclaimed, “I can’t think of many better targets for a short.”
Don't mistake Bristol Capital Advisors as a noble savior just because that "activist" firm suddenly feels driven to overthrow the current leadership due to its alleged incompetence and obvious greed, either. After all, Bristol secured its sizable stake in Miller courtesy of lucrative consulting deals originally awarded – but recently cancelled – by the same boardroom directors that the “outraged” firm now aims to replace with a brand-new slate of its own.
If history serves as any guide, Miller could pay a rather steep price for that intervention should Bristol ultimately succeed.
Opko Health (OPK): TheStreetSweeper stands bullish following Q&A with Dr. Phillip Frost
It’s been a volatile few days for Opko Health (NYSE: OPK) as bear and bull articles duke it out over the growing company run by billionaire entrepreneur Dr. Phillip Frost. TheStreetSweeper’s gotten a little bruised in the melee (thanks, Anthony Bozza and Lakewood Capital Management!) but we’re back to say we stand by our original report supporting our rare long thesis. We feel the company is poised for further growth under the leadership of Dr. Frost.
TheStreetSweeper respects Mr. Bozza and more often than not has agreed with Lakewood Capital. We’re sure we’ll continue to view most companies in the same light in the future as we examine and expose poor management, accounting games and outright scoundrels infesting public companies. But this time, we simply disagree with Lakewood and the other shorts.
- Please tell us about your top two or three products that represent key catalysts, including timeframes and market expectations.
Dr. Phillip Frost: First is Rolapitant that we licensed out to Tesaro. They announced they expect to have results of the phase 3 trial to report sometime this month possibly. We have no reason to believe it’ll be anything but successful.
This is an important drug to treat nausea and vomiting associated with chemotherapy. The advantage it has compared to its competitors is a single tablet will suffice to cover the patient for four or five or even six days, whereas the competitors’ have to be taken on several days. Also, it is a highly effective anti-nausea and vomiting drug. And we’re hopeful it will show superiority, particularly with respect to the nausea part of the equation.
That should be coming along. And the company is expecting peak sales of over $1 billion, and our royalties are in the teens. We also get milestone payments of as much as $110 million as things move along. We’re very optimistic about that product.
Second, within the next few months, we’ll be introducing our 4Kscore for prostate cancer. We bought a special laboratory in Nashville, Tenn. to perform the tests. They have been gearing up and … we’re doing the final tests to permit us to use our laboratory to perform the tests for blood samples that will be sent in from far and wide.
The advantage, which will initially be a confirmatory test for a positive PSA (prostate-specific antigen) to try to avoid needless biopsies … The biopsies are expensive. They’re painful. They have side effects of bleeding and infections. So to avoid 60 percent of the biopsies that are now performed would be very important. Ultimately as things go on, because it’s a more precise test, we hope we’ll have the opportunity to perhaps even replace PSA as a screening test, in addition to the confirmatory use for it.
Third … other product is in late phase 3 trials. It’s Rayaldy, the Vitamin D compound for phase 3 and 4 chronic kidney disease. The Vitamin D levels in these patients are difficult to keep at a normal level. Because the Vitamin D levels are low, they tend to make more parathyroid hormone ... which causes demineralization of the bone and hyper-calcemia, which is a problem in that calcium deposits in the kidneys and the vascular system. And that’s often the cause of death in these patients rather than the kidney disease itself.
The problem with currently available, over-the-counter products is they’re not very useful in raising serum Vitamin D levels, particularly in kidney disease patients. And the prescription product have a possibility of causing hypercalcemia.
In order to avoid the hypercalcemia, physicians tend to give lower doses than really required. With our product I think we have the advantage of greater safety with respect to hypercalcemia. Very high efficacy.
Because the present products sell for as high as $5,000 per year and as low as $3000, with 8 million patients in the US with stage 3 and 4 kidney disease that suffer from low Vitamin D levels as well, the potential market even in the United States alone is quite large - in the billions of dollars. We don’t expect to capture that amount of sales initially. It will take a while, like with any product, to … have it reach its peak levels.
Those are three products that are within sight of coming to market. And we’re quite enthusiastic.
(TheStreetSweeper questions Lakewood Capital Management, which insisted it spoke with “numerous nephrologists” who were skeptical, and then chose to focus on Dr. Jeffrey Giullian, a “veteran nephrologist” to try to dispute Rayaldy's value. He’s such a veteran he began his clinical practice in 2008 or 2009 and has apparently published only three peer-reviewed papers in his whole life. Take a look at his web site, here. With all due respect to the doctor, one of our physician sources said Dr. Giullian was incorrect in stating (per quotes on pages 4 & 28 of Lakewood’s report) that over-the-counter Vitamin D causes side effects and that Rayaldy is just a bit better than existing OTC treatments.
Also, page 27 of the report states, “The side effect of vitamin D is that it can raise calcium and phosphorous too much, which can become a problem in later stages of CKD (when the kidneys are really struggling). So in more advanced stages of treatment, physicians switch patients to other vitamin D analogs such as Zemplar and Hectorol. These treatments have the beneficial effect of bringing down PTH without bringing up calcium levels.” Our doctor source said it is patently absurd to state that vitamin D analogs are less calcemic than OTC vitamin D.)
- Adding those products you discussed, Dr. Frost, what is the potential?
Dr. Phillip Frost: It is in the billions of dollars, without being specific. We don’t have to have $20 billion in sales for all three or even $10 billion, for that matter, for the present stock value to be extremely low … with the possibility of appreciation being very high. That’s the reason I continue to buy shares at most every opportunity I have.
- The author of the Lakewood Capital report suggests you are buying a lot of Opko stock in perhaps an attempt to entice investors into also buying. Anything to that?
Dr. Phillip Frost: I can’t keep people from being influenced one way or another. All I know is I invest because I don’t know of another investment I could make that I would be more comfortable with. It’s not part of a marketing strategy. Because if I didn’t believe in it I would be throwing away an awful lot of money. I’m not the type of person who throws away money.more...
Unilife Corporation (UNIS): Top 10 Reasons
While Unilife Corporation (NasdaqGM:UNIS) is flying, TheStreetSweeper lists the Top 10 reasons we’re bearish and short this over-hyped safety syringe company.
1. Novartis deal does not guarantee an ongoing revenue stream. The UNIS syringes will be used in a clinical trial, requiring few syringes. If Novartis enrolled 500 patients in the trial and injected each monthly using UNIS syringes, UNIS could look forward to only about $5,400 in revenue over a year. No wonder the UNIS press release doesn’t give financial details. It could easily take Novartis 3 to 5 years or more to complete clinical trials and get Food and Drug Administration approval before it would need to order any substantial number of syringes.
2. Even if the Novartis clinical trials pass with flying colors and get FDA approval, the company could easily decide to order syringes instead from safety syringe gorilla Becton Dickinson, controlling an estimated 70 percent of the syringe market. Besides, a whistle-blower lawsuit suggests UNIS lacks the protocol and safety procedures to pull off production of what sounds to be a more complicated syringe for Novartis.
3. Big announcements, bigger disappointments. Investors shouldn’t read into UNIS press releases that upcoming large revenue streams will necessarily occur. The press releases tend to list minimum volume purchases of UNIS syringes. These minimums are only to preserve exclusivity. No one is obligated to buy a certain volume.
4. UNIS CEO Alan Shortall has a goal of about a dozen contracts by year’s end. So far, five have been announced, including the Novartis deal and a Sanofi deal that are re-warmed old contracts. Is the company likely to average almost two contracts a week for the rest of the year? Highly unlikely.
5. Of the announced deals, three involve significant pharmaceutical companies – yet the press releases frequently mention contracts worth $5 million upfront initially plus milestone payments and “expected” revenue and other wishy-washy terms. Before investors hit the “buy” function, they should know what the company’s milestone payments are based on, what the volume production would be and when, plus the length of the ramp-up period. Investors need substance, not hype.
Opko Health (OPK) Street brawl: Doc and multi-billion dollar medical candidates positioned for win
Opko Health (OPK) Street brawl: Doc and multi-billion dollar medical candidates positioned for win
By Sonya Colberg, Senior Investigative Reporter
Opko Health (NYSE: OPK) may be sporting a shiner for now. But in this Street brawl, the big boy in the middle is a billionaire who wears that black eye like a badge of courage, knowing full well that adversity will make his company stronger. Besides, revenge will be so sweet.
Dr. Phillip Frost, the chief executive and chairman of OPK, is seeing a significant short position in his company. That doesn’t ordinarily bother him much, though the short interest is nearly 21 percent of the shares outstanding.
Anthony Bozza of Lakewood Capital (which is reported to suffer a 0.5 percent net loss partially attributed to its short portfolio) bloodied OPK’s nose a bit last week. He compounded the Wall Street drama when he presented his short thesis on the pharmaceutical company Friday during the Robin Hood Conference.
“We’ve always enjoyed a nice big short position,” Dr. Frost told TheStreetSweeper. “I know shorts who lost a lot of money … and later became my friends.”
Dr. Frost counts celebrity stock picker Jim Cramer, star of the “Mad Money” television show, among his many fans. A true believer in both the accomplished doctor and his company, Cramer enthusiastically recommended OPK back when it traded around the $5 range and remained bullish on the name even as the stock rocketed into double-digit territory. While Cramer understands the temptation to start booking those gains, and openly encouraged big winners to take some profits off the table a few days ago, he reiterated his ongoing support of OPK when TheStreetSweeper contacted him about the company over the weekend.
“I like it very much,” Cramer said in an email Sunday evening. “Many ways to win!”
Dr. Frost knows how to navigate the Food and Drug Administration, and is up on the latest technologies and discoveries in a complicated industry, Jake Dollarhide of Longbow Asset Management said this morning.
“You’ve got to give Dr. Frost a lot of credit for building a healthcare juggernaut,” he said.
“The next few years could certainly be a big opportunity for Opko,” Mr. Dollarhide said. “If those drug trials meet approval and those drugs are a success … we could certainly see the share price of Opko go significantly higher.”
Wall Street is stained by shaky companies overseen by shysters who happily mislead investors and then skulk away dragging bags of dirty money. TheStreetSweeper has exposed many of these fraudulent miscreants, shorted them and, in the process, tried to protect investors from painful losses.
But OPK is the rarest of rare finds for us. We like Dr. Frost. We like Opko Health. We like Dr. Frost’s assessment of his growing portfolio of sterling products:
“I’ve never been connected to any company with the potential of this one,” said Dr. Frost.more...
PhotoMedex (PHMD): No!no! doesn't cut it
Would’ve. Could’ve. Definitely should’ve. Those words ring in investors’ ears just after PhotoMedex’s (Nasdaq: PHMD) bungled earnings report. But there’s a lot more to this story as the company faces ongoing challenges.
Here are highlights from issues TheStreetSweeper has exposed about the company whose main product is the no!no! device that removes body hair with a hot wire device:
*Japan’s no!no! revenue no more. Ax falls on potentially $43 million-plus worth of product.
*Flawed stock buyback program. Insiders benefit.
*Food and Drug Administration reportable events, plus a quiet recall. Events include a fire that apparently ignited inside a patient’s throat.
*Lawsuits. With a federal lawsuit loss behind it, additional litigation possibilities loom.
*Reason to sell. Key company product is fading.more...
PhotoMedex: Just say No!No!
PhotoMedex (NASDAQ:PHMD) is stirring up a cauldron of characters and events that makes this “no!no!” hair-removal device company a hair-raising proposition for investors.
Characters include Kim Kardashian, the competition’s formerly raven-haired spokeswoman who was sued by PHMD.
And there’s Lewis Pell, board chairman and angel investor whose battered wings reportedly contributed to an initial public offering falling apart. Before he and Shlomo Ben-Haim both wound up at PHMD, he sued Mr. Ben-Haim, his frequent business partner and friend, alleging unfair distribution of assets.
Finally, insider Mr. Ben-Haim is an oft-sued Israeli biotech gentleman billionaire whose enemies once labeled a thug. His rival in one of those various lawsuits is none less than the State of Israel, which alleged he and a partner stole Israel’s technology for freezing cells and entire organs.
Here are six key PHMD issues that we believe pose risks for investors:
*Certain insiders dogged by volatile and litigious history, misappropriation guilty plea.
*Key product, already down in the U.S. versus last year, rests on flimsy, weak studies.
*Study shows key product, no!no! Hair Removal System, works no better than shaving. Further verified by significant consumer rancor.
*Possible class action litigation may be looming.
*We anticipate disappointing earnings ahead.
*Massive insider selling precedes planned $30 million stock buyback.
Now, through the light of a full moon - and TheStreetSweeper’s digging - investors can get a good look at ominous scars that may well damage the company’s future stock price.
SGMO: A fiery biotech with a product poised to go down in flames?
Sangamo Biosciences (NASDAQ:SGMO) is on fire.
One day it’s supposedly curing AIDS. A couple days later, it’s selling stock.
The Richmond, Calif. company just announced another public offering. That comes just two months after execs bragged about the company being loaded with cash - $66 million - not from selling a product since it has nothing to market, but mostly from research funding.
The offering of 6.1 million shares at $10.58 per share should produce about $65 million for “working capital and other general corporate purposes.” Underwriters may also pick up as many as 915,000 additional shares to cover over-allotment. Now many investors who've watched their $15 IPO shares tumble since 2000 face the prospects of more dilution.
Meanwhile, a cure for AIDS certainly should be shouted to the moon.
Judging by its recent presentation of clinical data at a conference in Denver, SGMO ought to be shouting. After all, when it made a measly $1 million acquisition of a riches-to-rags company, SGMO blared out the news in a one hour conference.
But it implies it’s pretty much got the cure for AIDS and that is not important enough for a conference? Just a little, carefully worded press release. Sort of like, “Umm, we can cure AIDS.”
Maybe SGMO folks are a little worried that an outright AIDS-cure announcement would expose their company to more critical questions and analysis. Well, read on.
Though SGMO happily buoys investors’ hopes by exclaiming about its “spectacular” and “unbelievably powerful” data, the signs say investors should get the red “Failure” stamp ready to go. Our investigation, reinforced by comments from renowned HIV doctor Joseph Sonnabend, suggests it’s time for a splash of cold reality on this company that’s seen its stock roughly double this year to its recent record $11.48.
Failure: SGMO’s key product, an HIV “functional cure?”
SGMO has raised money repeatedly over many years by promoting its zinc finger nuclease (ZFN) gene modification technology, described as “molecular scissors” that cut and replace gene pieces. About 300 biotech companies are working in genetic tinkering. SGMO’s key target is HIV, the virus that causes AIDs.
This is the technology that SGMO has used to entice investors since the mid-1990s. That’s right. For nearly two decades since its inception, the company has done a heap of talking. But it hasn’t moved a single product.
Here’s what SGMO has accomplished:
*It’s held six public offerings now since its IPO. These offerings total about $140 million.
*18 years of promoting an unapproved technology.
*18 years of raking in investors’ money.
*18 years of operating losses, since inception in 1995.
*Still not one marketable product. Nothing’s made it even to phase III clinical trials ... in 18 years.
*Previous attempted product using its technology for a diabetic nerve disorder failed in phase II testing.
*Consistent insider selling, including 47,000 shares sold for over $10, just a couple of buys. The last was in 2010 at about $3.
The evidence, we believe, indicates that SGMO keeps dragging out the same faulty study conclusions as a way to keep the money flowing. TheStreetSweeper would be astounded if SGMO produces a marketable anti-HIV product - ever.
We submitted trial results and graphs via email to Dr. Sonnabend, renowned HIV researcher and retired HIV clinician. He pioneered community-based research of HIV, co-founded three AIDS organizations and received the Nellie Westerman Prize for Research in Ethics.
The esteemed doctor was not impressed. He indicated that in all the information sent to him, there’s absolutely nothing to suggest SGMO’s treatment works.
“... I’d say that no meaningful evidence was presented to indicate that their treatment has antiviral activity,” said Dr. Sonnabend.
Zenyatta: Selling a Story with More Holes Than Its Celebrated Mine
CORRECTION: TheStreetSweeper has elected to remove the second story in this series after discovering on Friday morning that the CEO of Zenyatta actually worked with a different Don Sheldon than the promoter identified in the article. While TheStreetSweeper continues to stand by the other revelations included in that report, including the doubts expressed by notable industry experts about the validity of the story that the company itself has told, we have nevertheless chosen to withdraw the entire article to address the situation and compensate for this accidental oversight. We regret this error and apologize for any confusion that it might have caused.
Give Zenyatta Ventures (TSXV:ZEN.V; OTC: ZENYF) credit for this much. While that highflying junior miner has yet to deliver the most preliminary report that investors need to even begin judging the value of its celebrated graphite deposit, let alone produce any concrete evidence that its graphite rivals the best in the world, the company has managed to establish one thing for sure. As a standout performer in a crowd of junior miners that have tanked along with the underlying price of graphite – and now sports a hefty $175 million market capitalization that eclipses the market values assigned to a number of its more advanced rivals combined – Zenyatta has clearly proven that, if nothing else, the company knows how to sell a tantalizing story.
Granted, by the time that Zenyatta CEO Aubrey Eveleigh launched the company as a junior miner originally scouting for overlooked copper and nickel deposits, he had already mastered a similar pitch while steering the exploration program for another Canadian junior that obediently responded with some rather amazing – if fleeting – gains of its own. Like Zenyatta itself, MetalCorp (TSXV: MTC.V; OTC:MTLCF) looked hopelessly stuck in penny-stock land until the obscure resource player suddenly exploded to record highs after the company reported that it had basically stumbled upon a valuable discovery by complete accident. Indeed, with Eveleigh routinely surfacing as the official voice of that doomed company, MetalCorp literally spent years trumpeting a series of “lucky breaks” that kept hope alive (and the bleeding miner afloat) long enough to deplete most of its funds and finally prompt the board to kick the future chief of Zenyatta out of its own executive suite.
Four years after MetalCorp severed its ties with Eveleigh -- later credited for raising the mountain of cash that the battered miner spent -- the company now sports a total market of value of less than $1 million and trades for a mere penny a share.
While initially forced to settle for a similar post at an obscure miner that looked similarly worthless, Eveleigh soon negotiated a handy deal that would allow him to overcome the fresh stain on his record (since erased with the helpful passage of time) and provide him with the material to produce his recent encore. After securing minority rights to some remote mining claims through a consulting firm that he owns – terminated by wrecked MetalCorp, along with the executive himself, earlier that same year – Eveleigh orchestrated a lucrative related-party deal that supplied that discarded asset to a “numbered” company that could then go public with that swampy land as its flagship property and the disgraced executive in charge of the entire show.
When Zenyatta filed the official paperwork for its stock offereing the following year, of course, the company dutifully portrayed Eveleigh as a successful corporate executive with an impressive background in geology and a proven track record in the mining field. Notably, however, Zenyatta also referred to Eveleigh as an outright “promoter” throughout its prospectus and further underscored that disturbing role in a so-called “certificate of the promoter – signed by the CEO himself – at the end of that crucial document.
To be sure, with Eveleigh overseeing its business and handling its publicity, Zenyatta has followed a rather familiar path on its amazing journey to record-breaking highs. After debuting as just another obscure miner and languishing in penny-stock territory for a couple of years -- providing early investors with little incentive to exercise pricier warrants that would inject millions into its bank account -- Zenyatta suddenly rushed to capitalize on its own accidental discovery of a particularly hot resource that had spiked in price to generate plenty of helpful buzz. With the company trumpeting its graphite deposit as both extraordinarily rare and extremely valuable, while forecasting massive production rates of top-quality graphite that commands a steep premium, Zenyatta finally began to gather steam about a year ago and soon blew right past the former hotshots in its peer group to emerge with the most breathtaking gains in that fading sector by far.
A stock that fetched as little as 15 cents a share last summer, threatening to render a mountain of $1 warrants effectively worthless by the end of the year, Zenyatta has since rocketed all the way to a record high of $5 a share and continues to trade near the top of that gigantic range. Indeed, even after shedding 25% of its peak value since late July, Zenyatta still commands more than an entire group of noteworthy competitors – with both its stock and its overall market cap exceeding those of Northern Graphite (TSVX: NGC.V; OTC: NGPHF), Focus Graphite (TSVX: FMS.V; (OTC:FSCMF), Big North Graphite (TSVX: NRT.V; OTC: BNCIF) and Alabama Graphite (CN: ALP.CN; OTC: ABGPF) combined – despite the head-starts that position those miners to enter the market long before their pricier rival ever gets its own chance.
Since Zenyatta has never presented any documented evidence to validate its claims about either the abundance or the quality of its graphite deposits – and still needs to provide the first in a series of formal reviews that will likely take years to complete – the company strikes some of the most prominent veterans in the industry as a worthless promotion at worst and the riskiest name in the group at the absolute best.
“Zenyatta hasn’t done one thing to prove that they have material that can be used in the applications that they claim,” declared Asbury Carbons CEO Stephen Riddle, the fourth-generation leader of a company that has operated in the graphite space for more than a century. “Whenever it comes out that whatever they promoted isn’t going to work, the stock will collapse … Personally, I think that they’re going to put a big black eye on the entire industry.”
The ExOne Company: Irrational exuberance obscures black clouds building around 3-D printing
The ExOne Company’s (NASDAQ: XONE) surprise stock offering last week irritated investors.
The 3-D printer maker is diluting investors‘ shares to raise millions just six months after its public offering.
But the company has buried reasons for even more irritation deep within the S1registration papers it filed after the bell Aug. 21.
The chief executive and his interests get far more money under this deal than the company itself.
It’s roughly $100 million for him versus $72 million for the company. That’s 1.55 million shares and 1.1 million shares respectively at the $65 per share listed in the filing. The registration papers specify the shares will be offered by the company and by “selling stockholders.” A dig through the gibberish reveals those “selling stockholders” are actually CEO Kent Rockwell - through his two entities and trust.
Funny timing on that trust. Exactly one day before the registration announcement, Mr. Rockwell, through an entity, boldly gave his trust 450,000 shares worth about $30 million.
The stock reached $70 on the day he gave away the shares. As is common, share prices dropped right after the company announced the offering, falling for a time below $65.
And there’s more to this deal. Mr. Rockwell himself ultimately stands to benefit yearly from his charitable deed.
The “remainder trust” benefits Lafayette College, Rockwell’s alma mater. It requires Lafayette to pay Rockwell’s entity 5 percent of the trust’s assets each year for 10 years (likely over $1 million the first year). Whatever’s left over after a decade goes to Lafayette.
Once approved, the stock offering could also include up to 398,400 additional shares held by Rockwell’s entities, President David Burns (whose total 2012 compensation exceeded $3.5 million), Chief Financial Officer John Irvin (whose compensation exceeded $1.8 million) and two other execs. These are over-allotment shares exercisable within 30 days of the offering if the public demand is high enough.
The other millions of shares are locked up for 90 days or the end of November.
Yet another lockup release date hits just around the corner in early September. One minute before midnight on Friday, Aug. 30 is when the 180-day post initial public offering lockup expires, potentially unleashing more than 7 million shares onto the market. The lockup release initially set for Aug. 5 was delayed until after the company reported its 2Q earnings in mid-August.
At nosebleed valuations, the company and Mr. Rockwell are likely to sell far more stock than if the valuation had been depressed.
Personal piggy bank
XONE reported proceeds of about $92 million from the initial public offering in February. But about $16.6 million of this went into Mr. Rockwell’s pockets through his entities for things such as land payments, and repayment of loans and one entity’s entire debt. He also sold more than $10.2 million of stock in the IPO.
After subtracting costs such as offering expenses, our figures show XONE realized IPO proceeds of about $63.3 million.
The initial public offering made Mr. Rockwell about $26.8 million richer.
Indeed, Mr. Rockwell seems to be having a lot of success in making XONE his own personal piggy bank. The two offerings potentially could make him $97 million to $127 million wealthier.
Mr. Rockwell’s ownership has gone from 71.1 percent pre-IPO to about 22-23 percent or over 3 million shares, according to the filing. They’re worth somewhere around $198 million. Yet he’s apparently not afraid to pinch pennies - he charges XONE hundreds of thousands of dollars for the use of his entity’s airplane and services.
TearLab: Blind Faith in a Risky Highflier with Forgotten Tear Stains
TearLab (Nasdaq: TEAR) might feel like crying if it contacted some of the doctors listed on its own website as providers of its diagnostic test for dry eye disease and listened to the feedback from those who no longer use its glorified machine.
Take Dr. Seaborn Hunt, for example. A Florida ophthalmologist, Dr. Hunt practices medicine in a popular retirement town crowded with seniors who qualify for coverage of the $50 TearLab test under the government-funded Medicare program. While TearLab specifically identifies his clinic as one of three local practices that utilize its device – generally provided by the company, free of charge, in exchange for a commitment to purchase a steady supply of the disposable cards that its system requires – Dr. Hunt has already returned his own machine and gladly resumed his use of an old-fashioned diagnostic test for DED instead.
“It was just a pain,” one of his employees bluntly explained. “We sent it back because we found it to be inaccurate.
“I know that a lot of people are advertising it. But if you have (DED), you have it. You don’t need a machine to tell you that.”
In neighboring Alabama, yet another ophthalmologist on that list must have reached a similar conclusion. Identified by TearLab as one of only four eye doctors who offer its test in the city of Birmingham, the largest metropolitan area in the entire state, Dr. Michael A. Callahan recently pulled the plug on that medical device – portrayed as an outright “lemon” by a member of his staff – and shipped the machine back to the company, too.
“I saw them boxing up this machine yesterday,” the receptionist volunteered when contacted by TheStreetSweeper a couple of weeks ago. “And sure enough, that was it! They sent it back; they found that it was not all that it was supposed to be.”
For its part, TearLab promotes its namesake device as a tremendous breakthrough so revolutionary that eye doctors will likely adopt the test as a new “standard of care” by screening their patients for DED as a matter of routine. While TearLab acknowledged that it has fielded a “small number of device returns” from doctors who effectively bailed on their multi-year contracts, when specifically questioned by TheStreetSweeper ahead of this story, the company pointed to low reimbursement from private insurers in certain areas – never hinting at any dissatisfaction with the machine itself – as the primary reason.
Regardless, TearLab has definitely sold Wall Street on its sexy story. After all, based on virtually any normal measurement tool, TearLab arguably should remain stuck (where it languished for years) deep in single-digit territory. All told, TearLab mustered less than $4 million in revenue last year -- easily dwarfed by the $12 million operating loss that it endured while pursuing that business – and recently closed the books on a “blockbuster” quarter by generating a modest $3.5 million in sales (likely eclipsed by yet another sizable loss) even after a powerful growth spurt.
A neglected $3 stock just one year ago, TearLab has nevertheless rocketed all the way past $14 a share since that time to achieve a lofty market valuation of $410 million – a staggering 70 times its prior-year sales – with the help of bullish calls from conflicted analysts who keep on urging investors to buy the pricey stock in spite of its nosebleed multiples.more...
Coronado Biosciences (NASDAQ: CNDO): A master puppeteer’s folly?
Coronado Biosciences (NASDAQ: CNDO) is tangled amid a bizarre whipworm therapeutic candidate, jail birds, cozy relationships, crazy financing, decimated companies controlled by a master puppeteer - and just now a brand new $200 million shelf registration.
And it’s all precisely timed. The company is rolling out public stock offerings - and filed the new S-3 that will further dilute the stock with millions upon millions of additional shares - just before clinical trial results are released.
Is this because CNDO suspects its key candidate - live pig whipworm eggs - won’t work? Does the company suspect that it will never even reach phase III?
Despite several negative study results, CNDO is testing its pig whipworm eggs to treat auto-immune diseases, a medical area populated by fierce pharma companies with deep pockets.
Independent investigators recently conducted trials based on batches of 2,500 parasitic eggs, culled from pig manure, that hatched out in patients’ guts. The parasitic egg cocktails caused three to 19 times more incidences of pain and other severe side effects - typically lasting for weeks - than in patients on a placebo.
In fact, the results were so bad that over a dozen patients stopped gulping down their worm egg drinks before the study ended.
Similar risks turned up in three separate studies - all apparently ignored by Burlington, Mass-based CNDO. And even though independent study authors urged fewer eggs per dose in future testing, some patients will slurp down three times more - 7,500 worm eggs - in each dose every two weeks, under a new study that CNDO is resolutely conducting.
Set up for dilution
Despite the negatives, the stock more than tripled over the last year to reach an all-time high of $12.70 on April 23.
Days later, CNDO filed an ongoing at-the-market offering on April 29 to sell $45 million worth of stock at the company’s whim.
Was that enough? No. According to the newest S-3, the company amended the ATM offering so it could sell up to $70 million worth of stock.
And was that enough? No, still not enough. This bleeding company with a highly debatable product in fact quietly filed this new shelf registration after market close July 12. Once effective, CNDO will be able to distribute $200 million worth of stock or warrants from time to time over three years, as determined by market conditions. This represents tremendous dilution and overhang for a company with a market cap of about $234 million.
Revolution Lighting Technologies (NASDAQ:RVLT): A wild ride destined to leave investors in a heap?
A wild, sudden interest in its boring business has Revolution Lighting Technologies (NASDAQ:RVLT) soaring. Shares have more than doubled over the past three months, pushing the stock into the Russell 3000.
Rather impressive for a company that was pretty much left for dead late last year. Then Robert LaPenta, a high-roller known for both his horse sense and business sense, rode in with multi-millions of dollars to toss RVLT’s way in exchange for multi-millions of shares of stock in the light bulb company. After his financial entities’ first $6 million infusion last September, LaPenta propped up the struggling company again and again over the following months until the influx totaled $21 million.
But TheStreetSweeper believes Mr. LaPenta is beating a dead horse. RVLT just closed at nearly $4, but compared to its peers the stock should trade for about 7 cents to 20 cents per share. Even Mr. LaPenta’s entities paid what seems like a fair price of 13 cents to $1.17.
The reasons behind our position include:
*Big cash burn: dilution looks imminent.
*Based on the market cap of $305.7 million as of Friday’s close, sales are ridiculously puny.
*Most revenue depends on a recent over-priced acquisition that struggled with declining sales and no profits.
*Questionable ability to generate recurring revenues.
*Insider buying may be just a cheap way to promote the stock.
The company is still traveling through rough terrain, according to investment advisor Jake Dollarhide, CEO of Longbow Asset Management.more...
KEYW: Infecting Investors with a False Sense of Security?
* Editor's Note: The following story is the second installment in a detailed investigative report on KEYW. Simply click here for immediate access to the earlier article.
The more cash that KEYW (Nasdaq: KEYW) blows on acquisitions to pursue its capital-intensive growth strategy – without unlocking the fabulous potential that management sure liked to trumpet whenever it tried to justify those expensive deals – the more the bleeding rollup company seems to conveniently relax its standards for success.
Go back and look at the compelling story that KEYW presented to the press a couple of years ago, when it first arrived on the scene as a young public company bursting with fresh promise, and compare the glorious visions that management shared back then with the stark results that the swaggering upstart actually went on to deliver instead. In a bold (if misplaced) show of confidence ahead of an embarrassing setback, KEYW predicted that it would capitalize on its relentless shopping spree by not only enhancing its role as a prime contractor on big-budget government projects but also by maximizing the future performance of all the obscure firms that it kept on swallowing – casually boasting that “30 percent organic growth is achievable” right off the bat – once it fully digested those acquisitions into its own system and transformed them into a fresh layer of muscle.
Eager to showcase its early progress a few months after debuting on the Nasdaq exchange, KEYW bragged that it already generated two-thirds of its revenue from coveted prime contracts and practically assumed that its share of that high-margin business would further expand along with its escalating size. Unable to land a prominent $700 million government contract or even maintain some of the lucrative projects that it already supervised, however, KEYW wound up playing a secondary role on so many of the accounts that it inherited – with prime contracts accounting for barely one-quarter of its revenue by 2012 – that the company emerged from its costly shopping binge looking more like a lowly subcontractor than ever.
Since KEYW has largely manufactured its top-line growth by simply purchasing other firms and then booking their revenue as its own, the ravenous defense contractor still looks like a typical rollup company, too. To be sure, KEYW has yet to approach the impressive levels of organic growth that management supposedly regarded as “achievable” back when its young stock staged its first remarkable (if temporary) rally. Even based on the generous formula that KEYW prefers to calculate its organic growth – selectively including any new business that it has added while conveniently excluding any prior business that it has lost – the company has fallen well short of the incredible productivity gains that it originally promised and, two years later, now seem hopelessly beyond its reach.
KEYW: Drunk on Hype and Doomed to Sing the Blues?
As a fanatical “ParrotHead” with an encyclopedic knowledge of Jimmy Buffett songs, KEYW (Nasdaq: KEYW) Chief Executive Officer Leonard Moodispaw often seems more inclined to share catchy lyrics penned by his idol than useful details about the actual business conducted by his glorified rollup company. While Moodispaw likes to present snippets from those upbeat tunes as metaphors for noteworthy developments at his tightlipped cyber-security firm, however, he has somehow managed to overlook the very title that perhaps delivers the most fitting message of all: “Math Suks.”
No matter how well Moodispaw might spin its record or how much he tries to promote its next big hit, KEYW remains a bleeding defense contractor that has spent a fortune on acquisitions and – now down to its last $3 million and already burdened by plenty of debt (with limited available credit left) – still needs to prove itself.
Practically broke after raising almost $100 million through a dilutive secondary offering last fall, the war chest supplied by its initial public offering two years earlier basically gone, KEYW traveled all the way to Europe last week in an effort to strike up fresh interest in the company by hosting an apparent road show for investors halfway around the globe. A somewhat rare courtesy that largely escaped the attention of investors back home, left puzzled (but understandably pleased) by the energetic gains that KEYW recorded once that distant road show began, the move nevertheless struck some of the more cynical followers of the company as an obvious – if desperate – reach by the bleeding firm for additional funds.
While KEYW never bothered to openly publicize that important event on its official schedule, let alone divulge the actual intentions behind it, a corporate cheerleader helpfully volunteered that enlightening update from Europe himself. A former analyst who spent the end of his Wall Street career stubbornly clinging to his relentless faith in Force Protection, one of the more notorious flameouts that stained his record, KEYW Vice President of Corporate Development Chris Donaghey originally originally fell in love with the first rollup company that Moodispaw built before joining him in the executive suite at the next.
Focused since then on promoting KEYW alone, Donaghey surprised even TheStreetSweeper with news of the foreign road show when it contacted him on Tuesday seeking input from the company ahead of this story. Tied up with potential investors at the time, Donaghey promised to address probing questions from TheStreetSweeper – seeking detailed information to supplement the vague and/or opaque material that the stingy company normally chooses to share – by early this week for inclusion in follow-up stories. (Since KEYW emailed its somewhat vague responses to the questions that it chose to answer right as the market opened today, beyond the deadline that would have allowed reasonable time for their full incorporation into this story, TheStreetSweeper will simply provide a link to the the information supplied by the company at the present time.)
The first in a series of articles on the incredibly secretive cyber-security firm (with the second currently scheduled to follow in a matter of days), this broad introduction challenges the rosy image that KEYW has long enjoyed by presenting thorny evidence that pokes holes in the compelling story often sold to trusting investors as the absolute gospel. By combing through voluminous piles of regulatory filings and comprehensive databases full of revealing media coverage, TheStreetSweeper has gathered enough disturbing material to shatter some of the most powerful illusions that surround the company and in turn undermine some of the most critical arguments that favor its stock. As the opening installment in that series, this story serves as a general overview that summarizes overlooked contradictions to popular myths about the company, with the most relevant of those – related to its business strategy, its leadership team and its track record – detailed more extensively in the remaining sections of the report.
Lot78 (LOTE): A Glorified Fad Headed for the Discount Bin?
As an overhyped microcap name touted by dubious stock promoters, Lot78 (OTC: LOTE) sure looks like a fashion stock that will soon go out of style. After rocketing all the way from $1 to $9 a share in recent weeks – an inexplicable spike that has left the bleeding retailer with a bloated $500 million market value that now exceeds 1,000 times its prior-year sales – LOTE bears an awfully close resemblance to another hot fashion pick that wound up with the shelf life of a momentary fad.
Forget about all of the warnings that LOTE has included in its official regulatory filings for a moment: the modest sales, totaling less than $500,000 annually, that actually declined last year; the relentless losses and lack of cash that drove the company to borrow $40,000 from its founder just to stay afloat; the onerous debt, owed to its major shareholder, that literally exceeds the dwindling sales mustered by the company over the course of the past year; the doubt expressed by its independent auditor over its very chances of survival; even the insolvent status of the company reflected by the imbalance between the meager assets and the far larger liabilities recorded on its books.
In fact, go ahead and forget about the reverse merger that magically transformed the company from a defunct energy firm into a highflying retailer – using a vehicle long associated with “pump-and-dump” schemes – that has somehow exploded to reach double-digit prices rarely achieved (let alone maintained) on the lowly penny-stock exchange. Granted, under the terms of that reverse merger, the original owners of the empty shell wound up holding almost half of the stock that now trades under the LOTE symbol and now stand to make a tremendous fortune by unloading those expensive shares with the stock in overdrive. Of course, now that LOTE has mysteriously surfaced on a foreign stock exchange that’s particularly vulnerable to manipulation, those lucky investors could further boost their outsized gains by actually selling some of that overvalued stock short – effectively betting on its decline -- and hitting a nice jackpot on any future collapse.
Overlook the fact that the founder’s citizenship makes it virtually impossible for poor, disgruntled shareholders to seek justice, should the need arise. Indeed, filings state:
"Our sole officer and director, Mr. Oliver Amhurst, is a resident of Great Britain. As a result, it may be difficult or impossible for our investors to effect service of process within the United States upon him, to bring suit against him in the United States or to enforce in the United States courts any judgment obtained there against him predicated upon any civil liability provisions of the United States federal securities laws."
Forget that, anyway. Simply focus on the glossy newsletter mailed to thousands of potential investors – courtesy of a massive publicity campaign with a $2.5 million budget that actually exceeds the total sales achieved by LOTE to date – instead.more...
Lululemon: Sheer lunacy
Lululemon Athletica’s pants fiasco is just getting worse, forcing the yoga gear company into a futile battle that we believe will persist and lead to missed earnings.
The pants debacle cost LULU an estimated $75 million -$86 million expected to cut earnings per share by 11 cents to 12 cents. But now, the company has pulled more garments and even more recalls could be ahead.
Last Friday, the company pulled clothing made of its candy-striped Luon fabric but did so quietly, notifying only a minority of customers who happened to catch the recall mention on LULU’s Facebook page. This comes almost a month after the initial recall of the core black Luon women’s pants. TheStreetSweeper wanted to ask LULU why the candy-striped bottoms were no longer listed on its website this week but LULU declined an interview.
Even more clothes may need to be recalled because the sheerness problem would be as bad or worse than the black Luon garments because of the characteristics of the fabric, according to a source with 29 years of experience, including many years with a key competitor.
Photographs show some colored pants offer little more coverage than panty hose.
The company, meanwhile, is striding forward in its tried-and-true fashion of not discounting, Day also assured analysts during the March 21 conference call.
Here’s what she said:
“We achieved these results in a very brand-appropriate way, and did not buy our comps through discounting, which ultimately would have harmed the brand. We maintained a full price strategy up to the holidays, then used our traditional warehouse sales as an effective and low-risk way to clear our inventory.” (italics added)
Just one week after she made that statement, the company quietly held a massive weekend sale.
LULU customers in New York, Dallas, Los Angeles and other cities sorted through racks loaded - and often reloaded - with numerous garments over three days. These were not just last season’s styles and colors but also new styles, according to our checks of more than 20 stores. In one case, the sale was so secretive that an irate customer said that, the day before the sale began in a New York City store, an assistant manager left a message on her phone saying there would be no sale.
The sales - which clerks or educators typically referred to as “markdowns,” (one former clerk says the word “sale” was strictly forbidden) - are common and continuing. Indeed, significant markdowns were offered in many stores we checked on again last weekend.
Educators in Las Vegas and Seattle stores said that customers can always find a rack or two of new and older styles marked down. In fact, the sales are directed by corporate headquarters, as a Vegas educator said that, while the store can exercise autonomy, it also gets weekly calls from corporate to learn which items to mark down.
LULU’s strategy of scarcity is the coveted key to keeping customers running to its stores to buy yoga gear on the spot at full price. This is not just something she alluded to in the March 21 conference call. Day has made it obvious time and again that brand-harming discounting is not the LULU way.
“Our guest knows that there’s a limited supply, and it creates these fanatical shoppers,” Day told The Wall Street Journal last year.
And in an interview on CNBC in January, Day reiterated LULU’s disdain of promotions: “You’re either going to play in that game of discount or you’re not. And we’re in the ‘not’ category,” Day said.more...
Bio-Reference: The Chilling Results of a Lie-Detector Test
Talk about a company that knows how to test the limits of credibility. By now, Bio-Reference Laboratories (Nasdaq: BRLI) has contradicted itself so many times that its own statements establish the company as blatantly deceitful at worst and dangerously unreliable at the absolute best. As illustrated by the string of conflicting viewpoints and glaring reversals that follow, most of them directly attributable to the company itself, Bio-Reference might face more than a few challenges if it dared an attempt at passing a lie-detector test.
* Bio-Reference claim: “The company has no knowledge of any government subpoenas about its billing practices.” (Source: email from Bio-Reference to TheStreetSweeper on Feb. 25, 2013)
* Contradictory evidence: “The company has, from time to time, received subpoenas from state agencies and from the Office of the Inspector General of the U.S. Department of Health and Human Services seeking documents relating to the company’s billing-related activities.” (Source: brand-new disclosure in Bio-Reference 10-K report for the 2012 fiscal year filed by the company – and certified by its CEO and CFO as reliable – on Jan. 14, 2013)
* Bio-Reference claim: “Let me just go emphasize. In women’s health, we make these tests available. The doctors order these tests. They order the Pap smears. They will order whatever molecular test that they want. We don’t do that … We may monitor what they do and make sure, if we can, they don’t over-test … But these doctors choose it.” (Source: Bio-Reference CEO Marc Grodman downplaying the potential for excessive use of high-end specialty tests sold by its GenPath subsidiary during a quarterly conference call on May 26, 2011)
* Contradictory evidence: “$300 visit + $845 lab bill for an annual checkup. Lab is called GenPath, and they conducted fraud on my insurance and me by charging for some kind of tests that were never ordered. Seaside staff member said: ‘I think the lab is regularly overcharging patients like this and, when they charge the insurance, they don’t return anything.’ ??? After several aggravated calls to Seaside, they finally persuaded the lab to waive the out-of-pocket fees, but are still keeping what they’ve stolen from my insurance. This is wrong on many levels and could happen to you.” (Source: an online review posted in December of 2012 by Diana Konrad, a San Diego photographer who underwent a routine Pap smear only to later discover that GenPath had billed her Blue Cross/Blue Shield plan for a far more elaborate test – without prior authorization from her physician – and allegedly pulled the same trick with others on a regular basis)
* Bio-Reference claim: “The change in the BlueCard … is a complex issue which, for the most part, only became effective as of January 1, 2013. At this time, the company believes it is too early to ascertain potential impacts on its business.” (Source: email from Bio-Reference to TheStreetSweeper on Feb. 25, 2013)
* Bio-Reference claim: “Based on our current experience with billing, we believe the change in the BlueCard program will not have a material effect on our business this year … I think it’s creating a lot of confusion, (but) we’re comfortable in being able to say that, overall, the impact is not going to be significant for us.” (Source: conference call hosted by the company to review its first-quarter results and full-year outlook on Feb. 28, 2013)
* Contradictory evidence: “Something else is occurring now that could be very difficult for some of us in independent laboratories. (Soon), the easier access that BlueCard afforded the patient will be gone … If we’re shut out of the game before that change evolves, then we won’t be able to compete … Think of it this way: The Blues will be able to do what the FDA could not do to stop innovation and new testing, because you simply will have no ability – no way, no mechanism – to bill, except to have the patient pay for it out of his or her own pocket.” (Source: speech given by Bio-Reference CEO Marc Grodman to fellow lab executives in May of 2012 ahead of the nationwide BlueCard change)
* Contradictory evidence: “Some labs are seeing as much as an 85% drop in Blue Cross payments. This is going to cause regional laboratories a big financial hardship … It’s something that we’re struggling with tremendously.” (Source: fallout from the BlueCard change witnessed by Alice Carroll, president of Revenue Cycle Consultant, a firm specifically hired by labs to help enhance their billing systems and bolster their collection rates)more...
Bio-Reference (BRLI): Overdue for a Dose of Shock Therapy?
Don’t be surprised if Bio-Reference Laboratories (Nasdaq: BRLI) finds itself stuck with so many rejected claims that, after years of relentlessly pushing expensive specialty tests, the company finally starts to look like a victim of its own success.
Take the flood of denials that Bio-Reference can expect from the most dominant health insurer in the entire country. While far from the only setback that Bio-Reference has encountered -- with a whistleblower reporting government scrutiny of its past billing practices, for example, and multiple insurers disputing its claims for tests on suspected con artists – this one potentially represents the most immediate threat.
Last fall, two weeks before Bio-Reference opened its books on the quarter that it will review tomorrow, the Blue Cross and Blue Shield Association closed a major loophole in its flexible BlueCard program that stripped regional labs of their former access to BCBS plans outside their own borders. Ever since BCBS enacted that nationwide policy, records indicate, Bio-Reference has effectively operated as an out-of-network provider – subject to copayments, deductibles and routine denials – in every state except for the handful where the company actually holds contracts with local BCBS plans. As a regional laboratory that generates 60% of its revenue from lucrative “esoteric” tests that it markets all over the country, where one-third of the population relies on BCBS for health benefits, Bio-Reference could theoretically lose 20% of its business due to this overlooked measure alone.
“Some labs are seeing as much as an 85% drop in Blue Cross payments,” said Alice Carroll, president of Revenue Cycle Consultant, a firm specifically hired by labs to help enhance their billing systems and bolster their collection rates. “This is going to cause regional laboratories a big financial hardship … It’s something that we’re struggling with tremendously.”
Just ask the labs themselves. Fearing outright ruin, several regional laboratories have already raced to sue BCBS in a desperate attempt to reverse the BlueCard policy and escape the massive fallout that they otherwise expect. Their own panic devastatingly obvious, the plaintiffs warn of widespread casualties throughout the industry -- with “even the most distinguished reference labs” weathering painful blows, “hundreds of molecular and specialty labs” failing altogether and “the entire molecular industry” soon vanishing for good.
No wonder Bio-Reference started acting like some frantic last-minute shopper over the recent holiday season. Just weeks after Bio-Reference boldly predicted yet another blockbuster year, forecasting a 15% surge in revenue despite a potential dive in BCBS payments that could erase those projected gains, the company suddenly took a radical detour from its regular strategy by splurging on a couple of obscure labs far away from its Northeastern base. During a rare shopping trip that caught little (if any) attention from analysts distracted by the festive holidays, Bio-Reference blew almost $9 million – roughly one-third of the cash in its bank account – on a pair of labs down in Florida and specifically cited their local BCBS contracts as a primary reason.
Since Bio-Reference never even bothered to mention the pesky BlueCard change to its investors, long accustomed to blowout financial results, the company better hope that it can somehow land enough extra business in Florida to offset the potential losses that it faces in elsewhere throughout the country.
Blowing the Whistle on Cyberonics
(Editor's Note: TheStreetSweeper is pleased to introduce a brand-new investigative report by Infitialis under a special arrangement that gives our own readers the chance to see this groundbreaking research first. We welcome this opportunity.)
We are Infitialis, a research collective that systematically exposes fraud and folly in financial markets. Since August 2012, we have published 10 meticulously researched exposés on companies that we believed had engaged in unscrupulous behavior or exhibited unsustainable market valuations. Below you will find our track record disclosing each of our exposes, the date of publication and the subsequent price action following the publication of our research.
Price on Date
Suspended by SEC
Each and every one of our reports has contributed to a profit with an average decline of 71% from the time of publication. Today, we present our highest conviction exposé yet highlighting folly in the form of a significant valuation bubble. More importantly, we present -- with the help of a whistleblower -- very serious allegations of unscrupulous and potentially fraudulent activity on the part of NASDAQ-listed Cyberonics, Inc. (NASDAQ: CYBX). These detailed allegations have been documented in an amended complaint filed by the whistleblower in Massachusetts Federal Court just a week ago on January 16, 2013.
This is the first time these allegations and this lawsuit are being disclosed to the investing public, as the company failed to do so even as the original complaint was filed on August 8, 2012 -- well within the disclosure period of the last 10Q.
CYBX: Our Highest Conviction and Most Asymmetric Expose Yet
In this report, we present the culmination of nearly two months of research into Cyberonics, Inc. which resulted in our belief that the Company will never grow into its current $1.5 billion valuation in the bull case and may decline by 80% in the bear case should any of the allegations in the whistleblower suit be proven in federal court.
We will start by objectively reviewing the science behind the CYBX device in an effort to understand whether the device actually works or is simply being marketed by the Company as the end-all treatment for various medical conditions.
Next, we will provide an analysis on the effectiveness of the treatment for depression (a new frontier the company has been touting for years). This analysis is important, as the analyst community is currently relying on growth in the depression market to rationalize a mathematically irreconcilable share valuation.
Finally, we will unveil the very serious whistleblower allegations which we believe reveal the missing piece in the puzzle of the CYBX business model: Cyberonics management team incentivizes its sales organization to engage in unscrupulous and potentially deadly behavior all in an effort to juice its top-line revenue, while insiders sell unprecedented amounts of stock into the market.
We will end the report with three valuation assumptions for CYBX -- bull, base and bear -- that incorporate all the qualitative and quantitative data in this report.
PSS World Medical: Prognosis Undetermined
PSS World Medical (NASDAQ: PSSI) is a shopaholic with more than 100 acquired companies under its belt and a recurring need to reinvent itself to try to keep up with the competition.
The distributor of bed pans, medicine and similar items is lugging around heavy debt - and the torment of posting its lowest net income in 25 straight quarters.
A forensic accountant who reviewed some of the Jacksonville, Fla.-based company's documents also pointed out some scars in its finances.
"It wouldn't surprise me if the company was trying to hide something," said Keith Mautner, a San Diego, Calif.-based forensic accountant.
"They're doing things companies that engage in fraud also do, but that doesn't necessarily mean they are engaging in fraud themselves," Mautner added.
PSSI, market cap $1.1 billion, distributes medical products primarily to doctors' offices, but also long-term care and assisted living facilities, and home health-care and hospice providers.
PSSI management did not return telephone calls requesting an interview with TheStreetSweeper.
Some PSSI issues that deserve closer examination:
* Falling profits; history of missed estimates
* Failed buy-out shears shareholders, fires up concerns
* Heavy debt
* Restructuring bothers analysts
* Some analysts downgrade
* Losing out to big competitors
* Inadequate hospital distribution
* Insiders selling
Falling Net Income and Long History of Missed Estimates
It's been a long, long time - 25 quarters - since PSSI has reported such dismal net income. The company's income fell to $10.7 million this past quarter. That profit - damaged by increased general and selling expenses, plus new acquisitions - compares with about $20 million in each of the previous three quarters.
Investors have to look way back to June 2008 to find income that dipped as low. The income dropped to $9.4 million then.
And PSSI continues to fall short of Wall Street expectations again and again. The company has missed revenue estimates for the last five quarters in a row and missed on earnings per share for the past three quarters, recently posting 18 cents actual versus 21 cents expected.
In an email to TheStreetSweeper from Goldman Sachs, it's clear that one of the world's largest investment banks does not like the direction PSS is headed, either. Goldman maintained its "sell" rating recently and lowered its estimates of the company's future performance.
"After reporting both a top-and bottom-line miss, it is difficult to gain increased conviction in the company's ability to meet both its near and long-term goals in a clearly still difficult environment," analyst Robert Jones wrote in the research report emailed to TheStreetSweeper.
"Although management made no changes to the long-term outlook for the company, we believe investors will be looking for several quarters of positive performance before better understanding the growth trajectory."
Goldman lowered 2013 earnings estimates from $1.14 down to $1.05. The 2014 estimate dropped to $1.30 from $1.55, and the 2015 expectation dropped to $1.37 from $1.65.
"We make no change to our Sell rating, as the quarter does little to change our fundamental view of the company and industry at this point," Jones continued.
Other analysts are also debating whether PSSI can really pull off the $1.11 to $1.15 earnings per share that management has guided them to expect for its fiscal year 2013.
"The continuing operations earnings number was 18 cents ..." Larry Marsh, Barclays Capital analyst said during a recent conference call. "Obviously, if you back out the first quarter (looking at $1.11 to $1.15 earnings) … that would imply you got to do $0.30 to $0.35 a quarter for the next three quarters. You are confirming that that's very much doable based on results today?"
"Yes," PSSI chief financial officer David Bronson said.
He also conceded that there will likely be some "choppiness" in results over the next few quarters as the company completes divestitures, reorganizes, adds to sales efforts and restructures its shared service support.
A New York City doctor who views PSS from the customer's standpoint sums up his take on the situation more bluntly.
"This is a desperate company," said the urologist, who wants to remain anonymous and is short PSSI.more...
Tangoe: Dancing on an Old Grave, Digging a New Hole?
* Editor's Note: The following story is the first installment in a two-part investigative report on Tangoe (Nasdaq: TNGO), with the second article scheduled to soon follow.
Talk about tricky moves. As a young public company with a tainted leadership team and an expensive shopping habit, Tangoe (Nasdaq: TNGO) could have easily tripped over tough questions alone by now. So far, however, Tangoe has spent more than a full year successfully dancing around a maze of potential landmines.
While the previous company led by its CEO and CFO literally exploded – with the pair directly blamed for that notorious collapse – and its growth depends more heavily on acquisitions than management likes to admit, records indicate, Tangoe has yet to stumble even once since it burst onto the stage. A $20 highflier, in fact, Tangoe trades at a rich premium when compared to both the general sector overall and the specific multiples that it has paid for the companies it keeps buying to fuel its amazing growth.
Hatched a dozen years ago just as the first public company long steered by its top executives approached death, Tangoe specializes in the niche arena known as telecommunications expense management (TEM). In a nutshell, Tangoe basically promises notable reductions in a major ongoing business expense by using a technology-driven system designed to shrink the bloated bills that companies often receive for everything from Internet to landline and cell phone services.
Currently in the midst of a muscular growth spurt, Tangoe has spent the past two years gobbling up smaller players that resemble itself in order to further bulk up its own share of that tasty market. That feast has cost a fortune, however, with growth-hungry investors footing much of the tab along the way.
Tapping the capital markets twice in the span of just 10 months, records show, Tangoe has raised a combined $100 million (after fees) and effectively spent most of that to fuel the very growth that makes its stock look so appetizing in the first place. In a shopping frenzy that began around the festive season and never really stopped, records show, Tangoe has managed to run up a bill totaling more than $75 million on acquisitions so far (not counting the $4 million owed on previous deals) and still remains on the hunt for even more.
Because of that expensive (and often risky) growth strategy, Tangoe looks an awful lot like the so-called “rollup” companies that have by now given investors plenty of reason for alarm.
As the last acquisition-driven company examined by TheStreetSweeper has already proven, those highfliers can sometimes crash in spectacular fashion. Just look at Swisher Hygiene (Nasdaq: SWSH) for some timely evidence. The stock chart for that rollup company tells a horror story (briefly summarized later) all by itself.more...
Medivation: Intoxicating Rally ... Imminent Hangover?
Until Medivation (Nasdaq: MDVN) can actually produce a commercial drug that lives up to the hype – now at levels that suggest a looming blockbuster even bigger than the market that it aims to serve – it will remain the same overvalued company it has always been since its 2004 debut on the penny-stock exchange. A highflier trading on the mere promise of a breakthrough treatment ever since it originally went public, utilizing a reverse-merger process long associated with pump-and-dump scams, Medivation has still yet to introduce a single product to the marketplace.
Despite the miserable failure of its original drug candidate, a Russian antihistamine fruitlessly tested for years as a treatment for Alzheimer’s disease, Medivation has staged a phenomenal comeback. Thanks to promising late-stage trials of its remaining prospect, a prostate cancer drug that allows dying patients to live a few weeks longer than rival breakthroughs on the market, Medivation already looks like a remarkable success. With its stock exploding from $15 to a recent all-time high of almost $90 a share, Medivation has managed to achieve a $3 billion market value well ahead of the long-awaited launch of its very first drug.
To Wall Street, the new Medivation treatment obviously seems like a valuable breakthrough. To urologists who spoke with TheStreetSweeper, however, that medication looks like just another temporary fix with an outsized sticker price.
“Most of these drugs tend to cost around $100,000,” one doctor emphasized. “That’s a lot of money for a few months of life.”
A former member of the Medivation board actually shares that point of view. While Medivation has yet to publicly announce the price of its new prostate cancer drug, Enzalutamide (previously MDV3100), the former director pegs the cost around $120,000 – higher even than an expensive rival and more than double the reported cost of a similar drug – while portraying the benefits as limited at best. He suspects that health insurers could easily reach a similar conclusion, restricting coverage of a six-figure drug that results in even steeper medical bills for terminal cancer patients, with that push-back ultimately curtailing sales.
By now, Dendreon (Nasdaq: DNDN) has already tested the same market – with miserable results – by charging anenormous price for a breakthrough prostate cancer treatment of its own. When Dendreon first secured approval of its $93,000 Provenge cancer vaccine two years ago, Reuters noted, bullish analysts automatically expected the drug to achieve blockbuster status. With doctors reluctant to even order the vaccine because of its gigantic sticker price, however, Dendreon soon lost its popularity on Wall Street and ultimately emerged as an outcast.
Medivation currently trades at even loftier levels on the promise of a rival drug that may cost even more, but its former director wonders just how long that gigantic premium can last. While he fully expects the company to secure approval from the U.S. Food and Drug Administration to market its new therapy, he still views Medivation as a $20 stock and nothing more.
“Look, I think it’s the most overpriced pharma stock out there,” he bluntly told TheStreetSweeper after selling his own shares. “I don’t know what’s holding that stock up.”more...
Jive Software: A 'Social Butterfly' with Borrowed Wings?
Jive Software (Nasdaq: JIVE) may look incredibly hip right now, as a standout performer in the popular social media space, but the company largely owes a short-term “sympathy rally” – trumpeted by a suspicious firm that placed a bet on its stock – for its superstar status.
After debuting as a hot new Internet play last December, when it jumped 25% at the opening bell, Jive soon lost its early sizzle and spent more than a month simply trying to hold onto its original gains. That pattern continued until early February, when Facebook registered for its initial public offering and set off an explosion that ignited even long-shot players in the field. Jive itself finally caught on fire at that point, a notorious stock promoter loudly broadcasting its outsized gains, and spent two full months on a flight due north that took its stock all the way from $15 to $28 a share.
Jive executives now look incredibly rich as a result. They control almost a third of those highflying shares, records indicate, with the two young cofounders – who established Jive while in their early 20s (before Facebook revolutionized the entire industry) – boasting a combined net worth of more than $300 million all by themselves.
“Apparently, there is inherent value in any software company that has the word ‘social’ included in their business summary,” a Motley Fool contributor marveled back when Jive first escaped from the powerful forces of gravity. “But what has changed? (And) what will happen once the FB hysteria settles down?”more...
Jive Software: Current Star, Future Wallflower?
Talk about fancy moves. Before Jive Software (Nasdaq: JIVE) finally stumbled a few weeks ago, hammered by a wave of selling pressure that could dramatically escalate from here, the bleeding social media company danced all the wayfrom $14 to $28 a share – virtually doubling in a brief 70-day span – without any major breakthroughs on its part. Jive instead relied on a powerful “sympathy rally” for most of those huge gains, records indicate, suddenly exploding to life after Facebook announced plans for an initial public offering that temporarily shifted attention away from its own plight. (See the main story above for a detailed review of that hyped-up rally.)
Since Jive itself went public barely five short months ago, the company faces a looming overhang that could soon pound its richly valued shares. When Jive carried out its IPO late last year, past news coverage reveals, the company originally released less than one-quarter of its shares onto the public market and subjected the vast majority of its stock to trading restrictions that will expire very soon.
Come June, records indicate, Jive could see roughly 38 million additional shares of company stock – much of it originally priced around $5 a share or less – start pouring into the marketplace. With Jive currently fetching almost $24 a share on the open market, where daily trading volume averages around 500,000 shares (the equivalent of just 1.3% ofthe restricted shares set for release), the stock looks rather vulnerable to say the least.
Jive actually took an early hit before its lockup period officially expired, a familiar pattern among young Internet stocks– such as Zynga (Nasdaq: ZNGA), Groupon (Nasdaq: GRPN) and even current standout LinkedIn (Nasdaq: LNKD) – that enjoyed temporary honeymoons after their celebrated public offerings last year. While Jive maintained its stamina longer than some other newcomers to the sector, records show, the stock finally reversed course about a month ago. Jivelost 20% of its value in the weeks that followed, shedding much of that during a heavy two-day selling spree, with the share count in its freely trading “float” somehow expanding (despite continued lockup restrictions) along the way.
Two venture capital firms control most of that restricted stock, records indicate, with both of them already recording massive returns on their investments at this point. Corporate insiders sit on a mountain of cheap restricted stock as well,records show, including a CFO who previously kept the books for a pair of young highfliers that soon collapsed and vanished from the stock market as the result of fire sales.
“JIVE is one of the few IPOs holding up,” one investor noted last month, shortly after cutting his own stake in the company. “Gotta feeling its days are numbered.”more...
Sunpeaks (SNPK): Will This Hot Stock Go up in Flames?
Editor’s Note: TheStreetSweeper has prepared a more comprehensive report on Sunpeaks Ventures (SNPK) and the promotion of its stock, which can be accessed by clicking here.
Sunpeaks Ventures (OTC: SNPK.OB) may sport a humongous $725 million market value right now, but it’s still the same dinky vitamin distributor that captured little business – or attention – before AwesomePennyStocks decided to aggressively pump up its shares. A bleeding company with just $3,562 in revenue at the time of its latest financial report, Sunpeaks operates from an “executive office” that resembles a garage and peddles a vitamin supplement that costs three times as much as a similar product found on the shelves of CVS drugstores today.
As is often the case in the microcap arena, of course, the SNPK story is more about the extraordinary promotion of the stock than it is about the company itself. Until recently, SNPK remained an empty Nevada shell with plenty of stock – some 370 million shares – but no real business yet at all.
SNPK morphed into a vitamin seller a couple of months ago, however, with its stock bursting onto the market a few weeks later in a flurry of trading activity. Although SNPK initially rose just 1 cent to 43 cents a share on March 8, its opening day of trade, it enjoyed massive volume from the start, with 160 million shares of the stock instantly changing hands.
At that point, AwesomePennyStocks – the most powerful promoter in the business – had just begun touting SNPK to a vast network of subscribers who soon rushed to scoop up the brand-new shares. Barely one month later, with 50 promoters in charge of 351 different newsletters pumping the stock, SNPK has literally quadrupled in price and now commands $1.70 a share.
Like a select group of early investors, Whetu Inc. – a mysterious Panamanian firm that inherited a big chunk of SNPKas it emerged from its empty shell -- now sits on an outright fortune as a result. After issuing a modest $110,000 promissory note to SNPK last summer, records show, Whetu wound up with 50 million of its highflying shares. That stock, if sold at current prices, would command a whopping $85 million today.more...
Questcor: The Secret behind Its 'Miracle' Drug
* Editor’s Note: The following article is the second installment in a two-part investigative series on Questcor Pharmaceuticals that began earlier this week. The original story can be found just below this one on the homepage.
Thanks to patients like Garry Sefcovic, who suffer from a common form of multiple sclerosis punctuated by debilitating “flares,” Questcor (Nasdaq: QCOR) has seen orders for its only major product – an old drug viewed as worthless by its previous owners -- literally explode in recent years.
Yet Sefcovic, for one, wishes that he had never even tried that high-priced drug. Last winter, when he sought treatment for a painful MS flare, Sefcovic assumed that he would receive the same cheap IV steroids that had effectively relieved his condition in the past. He wound up seeing a different neurologist, however, who automatically prescribed Acthar Gel – sold by Questcor for a whopping $27,000 per dose – to address his MS flare instead.
“I have good insurance and a chronic disease fund that will pay my deductible,” Sefcovic noted when speaking withTheStreetSweeper late last year. “They made a lot of money off of me.
“Then they had to give me steroid pills after the Acthar,” he added. “I should have just been put on the IV steroids right away.”
Several giant health insurance companies – such as Aetna (NYSE: AET), Cigna (NYSE: CI) and Blue Cross/Blue Shield (BCBS) – would clearly share that reasoned point of view. In fact, as a matter of policy, they officially mandate IV steroids as a first-line treatment for MS flares and normally refuse to cover Acthar for patients who can rely on that cheaper therapy instead.
Notably, Sefcovic receives health insurance coverage from a company -- Medical Mutual -- that subjects Acthar to a careful pre-authorization process as well. Rather than automatically covering Acthar for the treatment of MS flares,records show, Medical Mutual specifically asks whether the patient “had a FAILURE or INTOLERANCE to treatment with corticosteroids” in the past and whether the patient is “a candidate to receive treatment with corticosteroids” at the present time. At that point, records indicate, the insurer then authorizes coverage of Acthar only for those patients who cannot use traditional steroid therapy to provide them with relief.
In contrast, Questcor has taken a far more liberal stand on those who should qualify for its pricy drug. Reaching beyond the narrow population of outright steroid failures, records indicate, Questcor also markets Acthar for other MS patients who simply fail to achieve the same “baseline function” that they enjoyed before their flare-ups occurred. Since many MS victims fall short of this success (as illustrated by the progressive nature of their disease), critics feel, Questcor has effectively repositioned Acthar as a first-line treatment for many patients who should receive cheaper steroid therapy instead.
Despite the clear restrictions placed on Acthar for the treatment of MS flares – the primary condition addressed by that medication today -- Questcor has achieved remarkably high reimbursement rates for its obscure drug. Even though Questcor has seen its coverage rate for Acthar slip over the past couple of years (declining from between 90% and 95% to “generally above 85%” in the latest quarter), records indicate, health insurers continue to pay the vast majority of those expensive medication claims.
That said, however, Sefcovic clearly feels that his own insurance company wasted a pile of money on an overpriced – and ultimately ineffective -- drug that he should have never even received.
“I actually would have preferred steroid treatments first, as I’ve always done in the past,” he said in a follow-up email toTheStreetSweeper earlier this week. “I lose a lot of faith in doctors this way.”more...
Questcor: A Bold Strategy Threatened by the Fine Print?
* Editor’s Note: The following article is the first story in a two-part investigative report on Questcor Pharmaceuticals, with the second installment currently scheduled for release by the end of this week. To receive immediate notification when the second article appears, click on this link to sign up for a free email alert.
As a longtime nephrologist, Dr. Gerald Stephanz felt somewhat surprised when a sales representative suggested that H.P. Acthar Gel – a 60-year-old drug marketed by Questcor Pharmaceuticals (Nasdaq: QCOR) – might help some of the patients he treats for kidney-related disorders.
Stephanz had last used Acthar decades earlier, when caring for a patient suffering from multiple sclerosis during his residency, and had practically forgotten about the ancient medication since that time. He did remember that Acthar had once sold at a relatively cheap price, however, and that it had largely fallen out of favor after powerful IV steroids –embraced as a superior alternative – arrived on the scene. So the new price tag for Acthar (more than $25,000 a dose) and the new focus on nephrology (without solid clinical data) struck him as rather odd, to say the least.
Stephanz, for one, saw no compelling reason to try the expensive drug. He also felt offended by the “aggressive tactics” that led to a follow-up sales pitch at his office.
“They have this package they give you,” he explained. “But the label doesn’t have any specific indication for any treatable kidney disease that I can see … How are they going to market this?”
By capitalizing on its high price (raised 1,300% literally overnight) and its broad label (approved in 1952 based on its perceived safety alone), Questcor hopes to transform Acthar into a true blockbuster drug. Questcor views Acthar as afull-blown pipeline, in fact, relying on that single medication for virtually all of its current revenue and its forecasted growth as well.
Although Questcor reportedly paid just $100,000 for worldwide rights to Acthar – a product abandoned by its previous owners as a hopeless money-loser – the company now charges up to $250,000 for a single course of treatment utilizing that once-neglected drug. All told, Wall Street estimates, Questcor sold more than $210 million worth of Acthar in 2011 and – if recent growth trends prove sustainable – will likely see that total soar past $330 million over the course of the current year.
Questcor originally re-priced Acthar as an orphan drug used for an ultra-rare disease, records show, but the company now derives most of its revenue from soaring prescriptions for more widespread medical problems instead. In recent years, Questcor has dramatically expanded the market for Acthar by promoting it as a second-line treatment for patients who suffer from a common type of multiple sclerosis punctuated by debilitating flares. (TheStreetSweeper focuses primarily on that core market in the second part of this investigative report.) Inspired by that growth – driven in large part, former insiders say, by heavy prescribers who can pocket unlimited “speaker fees” for promoting the drug to others in the field -- Questcor has set out to replicate that success by pitching Acthar for another medical condition as well.
Last week, however, Questcor dropped a potential bombshell about this promising frontier.
Questcor has routinely stated that it can market Acthar as an “on-label” treatment for nephrotic syndrome – including a specific kidney disease related to NS known as idiopathic membranous nephropathy (iMN) – and even announced plans, earlier this month, to double the number of sales reps focused on this profitable arena. That sales team has already generated plenty of new business for the company in the meantime, records show, with Acthar prescriptions for NS rocketing 145% (on a sequential basis) in the fourth quarter of 2011 alone. Less than a year after aggressively breaking into this brand-new market -- where each patient represents a handsome six-figure opportunity -- Questcor now counts NS as its biggest, and its most lucrative, growth driver by far.
While Questcor has long indicated that it can freely market Acthar for this condition (and has funded a minor study,focused on iMN, that serves as a critical sales aid), however, the U.S. Food and Drug Administration has expressed a far more conservative view on this important matter.
“The approval of this product for this particular use predates the modern FDA ‘efficacy’ requirement,” the agency noted in an email to TheStreetSweeper earlier this month. “For that reason, we feel that it is best to stick to the exact wording used in the label (i.e., induce a diuresis or a remission of proteinuria) and not say that they treat the disease.”more...
Universal Display: A Real Work of (Prior) Art?
For its part, UDC has long proclaimed that its research partners at Princeton University first discovered modern organic light emitting diode (OLED) technology in the late 1990s and then went on to develop the actual OLED materials that now illuminate the display screens of some popular handheld devices found on the market today. In fact, however, outside researchers actually reported similar achievements years before UDC ever arrived on the scene. Armed with evidence of that “prior art,” UDC rivals now hope to severely weaken – if not completely destroy – the broad OLED patents secured by the company.
From the start, UDC has basically relied on two early patents to serve as the foundation for its entire portfolio. The first established the design of its fundamental technology, known as the “OLED stack,” while the second covered the special “emitter” compounds – since limited to iridium by patent authorities overseas – that generate the light in OLED-powered screens. By the time that UDC received (or even requested) those far-reaching patents, however, others had already documented similar breakthroughs in the field.
UDC did not respond to questions for this story.
Phillips Electronics actually patented a multilevel OLED stack back in the mid-1990s, records show, some two years before UDC followed up by presenting that same type of design. Moreover, when Phillips described the core elements of its invention in 1995, the company used the same kind of language – at times almost identical in nature – that UDC would later include in a related patent issued to the company six years down the road.
Phillips is now challenging a European version of that UDC patent overseas, records show, using its own patent (along with the early research of others) to portray its smaller rival as a glorified copycat. In a nutshell, Phillips argues, UDC secured an unfair patent – based upon technology that “is not new” and “does not involve an inventive step” – that the company arguably should have never received at all.
Similarly, records indicate, UDC followed in the footsteps of others when formulating the “unique” OLED emitter materials – specifically those derived from iridium --covered in its second major patent as well. Long before UDC showcased this development, records show, outsiders had already traveled down that same path by establishing the power of iridium to generate light. Researchers at the University of Southern California-Santa Barbara first highlighted this breakthrough two full decades ago, in fact, with a separate group of scientists further advancing that discovery – using iridium to create light at room temperature this time – that same year.more...
RAYS of Sunshine ... or Clouds of Doom?
Raystream (OTC: RAYS.OB) recently began lighting up the skies of Pennyland by proclaiming that it had developed a new video-compression technology that outshines anything on the market today. In reality, however, Raystream appears to be selling open-source software – available at no charge – to anyone who wishes to use it. That software, known as “x264,” can be downloaded here for free.
Raystream burst into the spotlight with the help of an aggressive promotional campaign financed by an outfit known as Unlimited Trade, which also furnished startup money for the company. In a striking coincidence, covered in more detail below, Raystream and Unlimited Trade share a common link with a once-famous – but now-fallen – German Wunderkind named Tan Siekmann.
When Raystream began trading under its current symbol this fall, the company issued a press release introducing the public to its video compression software. At the time, Raystream CEO Brian Peterson proudly declared that the company’s “disruptive technology could forever alter the way business is done online.” The announcement further explained that this “proprietary” technology “could reduce the bandwidth required to stream HD video online by up to 70%.”
The next day, Raystream revised that figure to “up to 90%” and revealed that – thanks to a generous infusion from Unlimited Trade – the company now had almost $2 million in cash on hand. Raystream and its promoters spent the weeks that followed celebrating the importance of this technology, boldly predicting that it was likely to unleash a torrent of demand.
So who, exactly, is the genius responsible for this magical breakthrough? The CEO runs a Dallas-based digital signage company known as Peterson-Hines and, upon joining Raystream, brought most of his