HHWW: Another Hyped-Up Stock That's Dressed to Kill?
by Melissa Davis - 12/23/2010 6:11:28 AM
The corporate headquarters for Horiyoshi Worldwide (OTC: HHWW.OB), located within blocks of several Los Angeles homeless shelters servicing Skid Row, looks rather modest for a high-end fashion company that recently sported a market value approaching $200 million.
Earlier this month, TheStreetSweeper sent some locals to HHWW’s home office after watching the company’s stock rocket from $1 to $3 a share on a blizzard of paid promotions. They found a tiny operation, manned by a single staffer (focused on investor relations), that housed little more than two clothing racks containing about 20 T-shirts apiece.
Based on prices supplied in HHWW’s regulatory filings, those T-shirts represent an estimated $6,000 worth of inventory for the company. While meager, that figure nevertheless eclipses the $912 in total sales reported by HHWWfor the second quarter of this year.
To be fair, HHWW has yet to release third-quarter results that might reflect an uptick in sales following the company’s adoption of an aggressive growth strategy. Still, corporate filings show, HHWW actually saw its quarterly revenue plummet – sinking from $152,175 to less than $1,000 – in the months leading up to that grand plan.
Even so, stock promoters – paid huge sums to tout HHWW – have painted an incredibly rosy picture of the company. Last month, for example, Eric Dickson of Breakaway Stocks predicted that HHWW could soar more than 4,500% by the end of this year. The stock, currently trading at $1.63, must somehow find a way to reach $45.38 a share over the next few days for that wild forecast to come true.
Inspired by the financial analysis of some astute HHWW skeptics, TheStreetSweeper decided to evaluate the company using the tools commonly employed to value regular stocks. The results of that exercise proved rather telling.
Based on a generous price-to-earnings ratio of 15, HHWW would need to generate more than $180 million in annual profits in order to justify Dickson’s lofty target. At this point, however, HHWW cannot even muster the $6 million in annual profits that might justify its current share price. Assuming an estimated profit margin of 10% (like that attached to luxury clothing retailer Giorgio Armani in the past), HHWW would need to increase its annual sales by almost 2,000% -- obliterating the 30% growth rate posted by rapidly expanding Netflix (Nasdaq: NFLX) – in order to clear that kind of profit.
Stock promoters, as a group paid millions for their bullish calls on HHWW, clearly overlooked such harsh realities when issuing their reports. Instead, they have basically ignored HHWW’s actual results and focused on other matters – such as the company’s ambitious expansion plans – that are much more difficult to measure.
“With the launch of their new street-wear line coming within the next six months, the time to get into this company is now – before the tidal wave of profits sends shares of (HHWW) through the roof!” Dickson gushed when touting HHWW in his Breakaway Stocks newsletter. “With Horiyoshi’s design already boasting an impressive multimillion-dollar track record, this buying frenzy is a virtual lock …
“Call your broker or log in to your online trading account,” Dickson urged, “and snatch as much HHWW as you can.”
According to the fine-print disclosure that follows its screaming HHWW tout, Breakaway Stocks does not actually analyze a company’s financial performance – or technically recommend buying its stock – when issuing such reports. The newsletter instead reveals that it pockets a fee, in this case supplied by Capital Financial Media (or CFM), for publicizing the company. A notorious manager of big-budget penny-stock campaigns, which often end horribly for long-term investors, CFM received a whopping $2 million for orchestrating the massive promotion that triggered HHWW’s explosive run.
TheStreetSweeper officially flagged HHWW as a risky stock, placing the company on its “Caught on Radar” list the day it hit its $3.25 peak, earlier this month. Since then, TheStreetSweeper has gone on to thoroughly investigate HHWW – including its insiders and those promoting its stock – and compiled its findings in the detailed report below.
HHWW did not respond to telephone and email messages requesting information for this story.
Until mid-2010, records show, HHWW had spent years toiling among a crowd of junior Canadian mining stocks with little cash and no real prospect of future revenue.
Originally known as Kranti Resources, regulatory filings show, the company gave up on its first mining claim within months of pursuing it and engaged in little activity – other than expanding its share count – in the three years that followed. This February, filings indicate, Kranti made its final move in the mining business by amending an old contract that called for the company to spend $275,000 on exploration activities over the course of a four-year period. But just months later, filings show, Kranti suddenly decided to double its share count and radically shift its focus from mining to fashion apparel instead.
Under its new strategy, the company explained in its filings, Kranti would become Horiyoshi Worldwide – a firm named after legendary Japanese tattoo artist Horiyoshi III – and attempt to mass-market apparel featuring its namesake’s famous designs. Up to then, filings show, Horiyoshi had operated as a private company selling only high-end apparel on a “limited-run” basis since launching its young brand the previous year.
During 2009, filings show, Horiyoshi generated $30,633 in revenue – while racking up $255,798 worth of expenses – by selling most of its clothing to just three luxury retailers. Although those stores accounted for 85% of its revenue,filings show, Horiyoshi boasted that it had sold its clothing to more than 30 other retailers around the world as well. Based on prices supplied in its regulatory filings, however, those retailers would have sold an average of just $150 worth of Horiyoshi merchandise apiece – the equivalent of a single T-shirt – over the course of last year.
Nevertheless, both HHWW and its promoters have regularly portrayed the company as an established force with a far-reaching presence in the worldwide fashion arena. At last count, HHWW estimated that it was now selling its merchandise at 45 luxury boutiques located in 25 cities around the globe. Meanwhile, paid promoters have indicated that big-name retailers – such as Neiman Marcus – cannot stock enough HHWW apparel to meet soaring customer demand.
“From Paris to Palm Beach, from Los Angeles to London, you can walk into any of these boutiques and view Horiyoshi’s collection for yourself,” Dickson proclaimed in his Breakaway Stocks newsletter. “High-end retailers like Neiman Marcus, Fred Segal and Harvey Nichols are gobbling up as much Horiyoshi as they possibly can.”
As noted previously, however, Horiyoshi actually saw its sales plummet by 99% to less than $1,000 during the last quarter that it operated as a private company before deciding to sell itself. In the months that followed, filings show, Krantis officially changed its name to Horiyoshi Worldwide and began trading under its current symbol – with its stock priced around 60 cents a share – as the company prepared to gain control of the luxury apparel firm.
This September, about two months before HHWW began trading, the company inked a formal agreement to buy Horiyoshi through a share-exchange deal.
Under the terms of that original contract, HHWW promised to issue Horiyohsi 64.87 million shares of stock (later reduced to 30 million shares or half of the shares outstanding) in exchange for the private company. In official corporate filings, Macdonald Tuskey – a Vancouver law firm connected to a number of dubious microcap companies – shows up as the legal adviser to HHWW on that merger deal.
By now, TheStreetSweeper has linked Macdonald Tuskey to at least three risky penny stocks over the course of the past year alone. First, during its early coverage of Americas Energy (OTC: AENY.OB) in January, TheStreetSweeperclosely examined one of the firm’s named partners – Gerald Tuskey – after uncovering his checkered track record. With Tuskey serving as its legal advisor (and occasionally listed among its largest shareholders), AENY saw its stock rocketfrom $1.50 to $5.50 before later crashing to its current price of just 46 cents a share.
Two months later, TheStreetSweeper spotlighted Macdonald Tuskey as the legal advisor to Lithium (OTC: LTUM.OB) after paid promoters fueled a major rally in that penny stock. In that case, reports show, CFM – the same firm that wouldlater manage HHWW’s seven-figure publicity campaign – had hired Untapped Wealth, a sister publication toBreakaway Stocks, to recommend LTUM using funds from a $2.4 million advertising budget. While Breakaway Stocks predicted that LTUM would hit $5 in the short term before rocketing past $17 on down the road, inspiring MarketWatchto declare it the “Stupid Investment of the Week,” the stock instead peaked at just $1.41 and has since tumbled to 26 cents a share.
More recently, this May, TheStreetSweeper found itself again examining Macdonald Tuskey after the law firm surfaced as the legal advisor to Big Bear Mining (OTC: BGBR.OB) during one of the most notorious penny-stock promotions of the entire year. That stock, which rapidly soared from 75 cents to $1.75 on massive volume, now trades for less than a dime a share.
This October, after connecting Macdonald Tuskey to crowds of doomed microcap companies, The Vancouver Sunpublished an entire three-part series on Bill Macdonald – the firm’s other named partner -- as part of its ongoing coverage of the shady penny-stock arena.
“Over the years, Macdonald has helped dozens of questionable companies register their shares on the OTC Bulletin Board, a well-known watering hole for stock-market predators,” the newspaper wrote. Indeed, “Macdonald’s clients include some of the most untrustworthy people in Vancouver’s junior securities market.”
TheStreetSweeper called Macdonald Tuskey on Wednesday seeking input for this story. The receptionist placed this reporter on hold and, shortly afterwards, came back with news that both of the law firm’s partners had left for the holidays.
For its part, HHWW has found itself connected to some other penny-stock players that might raise a few eyebrows as well.
Take its CFO Ray Catroppa, just for starters. When announcing his appointment last month, HHWW portrayed Catroppa as an accomplished finance veteran who had spent the past six years advising “numerous public companies” that trade on major stock exchanges. But HHWW never mentioned Catroppa’s most recent employer, Cameron Associates, or the fact that it primarily caters to microcap companies by providing them with investor relations services.
Just one day before joining HHWW, records show, Catroppa was still managing investor relations for a penny-stock company known as Falcon Oil & Gas (OTC: FOLGF.PK). That stock, which peaked near 60 cents about 18 months ago, currently trades for 15 cents a share.
As a group, it appears, Cameron’s other clients have fared no better. Here is a sampling of companies, followed by their stock performance, featured on Cameron’s official client list: several current and former Nasdaq stocks – including Applied Energetics (Nasdaq: AERG), Celsius Holdings (Nasdaq: CELH), Encorium Group (OTC: ENCO.PK) and Vaughan Foods (OTC: FOOD.OB) – that have plummeted in recent years and now trade for less than $1 a share; and numerous penny stocks – such as 30DC (OTC: TDCH.PK), MediaNet Group (OTC: MEDG.OB) and, of course Falcon Oil & Gas (OTC: FOLGF.PK) – that have lost serious ground as well.
Initially, at least, HHWW enjoyed huge gains with Catroppa added to its team. Just weeks after hiring Catroppa as its CFO, in fact, HHWW announced a $5 million financing deal – albeit with an obscure Milan-based firm known as Zyndy Trade Corp. -- that helped spark an explosive rally in its shares. Although Zyndy surfaced out of the blue, withno obvious record of past clients or similar financing deals, investors hastily rushed to celebrate the promise of much-needed funds.
Barely a week after HHWW announced that it had received the first $2 million of those funds, raised by issuing Zyndy almost 2 million shares of stock priced at $1.03 apiece, the stock was trading at a record high of $3.25 a share. By the time that HHWW reported that it had collected the remaining $3 million this week (following a smaller grant to Zyndy of 1.58 million shares), however, the stock had fallen by almost half and actually lost additional ground following the good news.
While still hovering above $1.60 at this point, HHWW already reminds some investors of other once-hot penny stocks – touted by the same promoters – that ultimately collapsed in the end.
Long before CFM launched its multimillion-dollar publicity campaign for HHWW, records show, the firm arranged expensive – and temporarily effective – promotions for numerous penny stocks that later met with ugly fates.
As a young firm in 2003, Dow Jones reported, CFM managed a $1 million advertising campaign for a microcap company known as SHEP Technologies. With SHEP promoters touting valuable business deals with the likes of Ford (NYSE: F) and Eaton (NYSE: ETN), Dow Jones noted, the stock quickly soared to almost $3 a share. But those deals later proved to be bogus, Dow Jones indicated, and the stock quickly fell by half over the course of one short week. (Since then, SHEP has apparently disappeared for good.)
Undeterred, CFM soon moved forward with other stock promotions. In 2004, The Vancouver Sun reported, CFM managed a $700,000 advertising campaign for a company known as Aberdene Mines. Armed with that generous budget, the newspaper said, CFM hired James DiGeorgia of the Gold & Energy Advisor – who would later push BGBR before backing off when TheStreetSweeper spotlighted that risky call – to recommend Aberdene in his widely distributed newsletter. Although Aberdene rapidly soared to almost $4.50 a share following that report, the newspaper said, the stock had already lost half of its newfound value just a few days later. (Like SHEP, Aberdene now seems nonexistent save for the investor pain it left behind.)
When tapped to manage a new six-figure promotion for Eden Energy (OTC: EDNE.OB) the following year, Dow Jones revealed, CFM turned to DiGeorgia and his powerful newsletter once again. With DiGeorgia celebrating EDNE as “the second Saudi Arabia,” Dow Jones reported, the penny stock rocketed to almost $10 a share. Five years later, however, EDNE barely fetches a nickel and can sometimes go an entire session without a single share changing hands.
Meanwhile, StockPromoters.com records show, Small Cap Fortunes – identified in its own disclaimer as a division of CFM – has gone on to pocket huge sums of money for touting a slew of other ill-fated penny stocks as well.
One of those, a controversial company known as Planktos (OTC: PLKT.PK), caught the attention of The Vancouver Sun after its soaring stock gave the cash-stripped firm a market value of more than $100 million for a while. Less than a year after Small Cap Fortunes pocketed $250,000 to promote Planktos, however, The Vancouver Sun was reporting that the company had run out of money and decided to wind down its operations with the stock – previously touted as a $30 winner – trading on the lowly Pink Sheets for just two pennies a share. Like other stocks featured in expensive CFM campaigns, Planktos appears to be worthless now that all of the powerful hype has long since disappeared.
With Planktos fast sinking toward obscurity by the spring of 2008, records show, CFM soon received $300,000 to promote a notorious company known as Aussie Soles (OTC: AUSE.OB) in another big publicity campaign. This time,records show, CFM hired Untapped Wealth – a sister publication to the one that would later promote HHWW – and attracted some unwanted attention as a result.
Shortly afterwards, the Stock Gumshoe blasted Untapped Wealth for disguising its paid promotion of Aussie Soles as a credible stock pick and urged his followers to cancel their subscriptions to the newsletter.
“After their decision to participate in this particular ad, I’m much more suspicious of everything they do,” the Stock Gumshoe wrote back in May of 2008. “Recommending and touting a stock in exchange for money from that company puts you down at the bottom of the pile in my opinion … There’s a lot of company at the bottom of the pile, sure, but it doesn’t mean it’s where you want to be.”
Two years later, those who followed Aussie Soles still remember that promotion and the pain it would soon cause. With the former $2.50 stock fetching mere pennies (before volume completely disappeared), the Vancouver Sun recentlyslammed Untapped Wealth because it had “shamelessly touted” Aussie Soles in “one of the rattier made-in-Vancouver stock deals floated on the OTC Bulletin Board.”
Trinity Investment Research, the publisher of both Untapped Wealth and Breakaway Stocks, did not respond to messages seeking comments for this story. CFM ignored requests for information as well.
Despite its dismal long-term record, StockPromoters.com records show, Small Cap Fortunes has regularly commanded six-figure payouts for touting a bunch of other losing penny stocks as well.
TheStreetSweeper reviewed all of those stocks in detail and originally planned to document their performance until the list grew too long and the results too monotonous. In a nutshell, records show, almost every penny stock promoted by Small Cap Fortunes before this year has lost the vast majority of its past value and – in some cases – no longer even trades at all. In contrast, records show, only a tiny handful has emerged from massive plunges with any notable value still intact.
Otherwise, StockPromoters.com records show, only the firm’s two latest picks – First China Pharmaceutical (OTC:FCPG.OB) and none other than HHWW – still look like relatively “healthy” stocks with lasting volume and share prices above the crucial $1 mark. The first, touted by Small Cap Fortunes at 85 cents in October, rocketed to almost $6by early December but soon reversed course and now fetches less than one-third of that price. Meanwhile, HHWW itself soared from 80 cents to $3.25 – with the stock peaking just one day after FCPG did – before following a similar path to its current price of $1.63 a share.
To be fair, Small Cap Fortunes had plenty of company when touting HHWW for pay. According toStockPromoters.com records, more than a dozen other firms – including TheSUBWAY.com, TopGunStockPicks.com,EpicStockPicks.com and DailyProfit.com (another outfit paid by CFM) – collected money for joining in the chorus. That list does not even include newsletters like Breakaway Stocks, either, the tout sheet hired by Small Cap Fortunes parent CFM that may have delivered the most effective promotion of all.
Based on the track records of Breakaway Stocks and other firms hired by CFM in recent years, however, that powerful HHWW endorsement might spark less confidence than fear. In its paid tout, Breakaway Stocks repeatedly portrayed HHWW as the next True Religion Apparel (Nasdaq: TRLG) – a favored example among penny-stock promoters eager to showcase a rare fairy-tale microcap ending – when pushing investors to buy the shares. But if history serves as any guide, HHWW could easily wind up in the growing pile of worthless stocks – littered with tainted names like Planktos and Aussie Soles – long ago abandoned by those who once labeled them as surefire winners instead.
* Note: No member of TheStreetSweeper’s staff or advisory board has ever taken a financial position in Horiyoshi Worldwide (HHWW.OB) or received any compensation from others who have positions in the stock. As editor of the site, Melissa Davis will never take a position in any of the stocks that she covers. To contact Ms. Davis, the author of this story, please send an email to firstname.lastname@example.org.