Archive for the ‘penny stocks’ Category

Implant Sciences: Pumped and Probably Bankrupt (IMSC)

Friday, July 6th, 2012

Implant Sciences (IMSC) has historically been a sub-$1 Pink Sheet penny stock. The company makes devices to detect trace amounts of explosives. It sells the vast majority of its devices in Third World countries. Its products are not approved by the Transportation Security Administration (TSA) in the U.S.

In the last few weeks it has gained 50% to 100%, depending on the day of the week, giving it an astonishing $50 million market capitalization. The recent move has come on the following press:

VFC’s Stock House is a Seeking Alpha “Certified” author, which probably explains why the articles were picked up by Yahoo. The articles are entirely promotional and have titles like:

Gene Marcial’s blog is similar in that all of the information comes from the company itself. Marcial’s main “expert” is Goldman Small Cap Research. What Marcial doesn’t tell the reader is that Goldman is a penny-stock promotion operation. It does “sponsored research” (i.e companies pay it to be favorably covered). Its disclaimer states: “Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company….” Here’s a sampling of Goldman’s analytical writing from a couple of different reports:

  • “The moment you have all been waiting for is here…”
  • “The Most Disruptive Technology in Energy in Years…”
  • “…[a flurry of news] will move the stock close to the $0.10 level…a company that we believe will dominate…”

Furthermore, Marcial and Goldman are business partners, in a service called “Corporate Profile” or CPreports, which calls itself “a one stop resource for the hottest stock news and stock picks.” It too is a sponsorship based “news” service, according to its disclaimer:

Since Corporate Profile, LLC has been compensated in many instances for its services, investors should evaluate the information on the Site with that in mind and should always perform their own independent analysis. Corporate Profile or its affiliates may from time to time aqcuire stock in companies that it covers. This compensation could be in cash or/and issuance of securities of the profiled company.

Needless to say, CPreports’ homepage links to Marcial’s Forbes column. Mutual back-scratching and possible conflicts of interest are rather common in this story. Update: All the signs point to Corporate Profile taking money to pump the stock, as seen in this hard-hitting YouTube video.

Marcial’s other expert is “Gregory MacArthur, president of investment consulting firm ViewPoint2000.” He says nothing that isn’t straight from a company press release. ViewPoint2000 has no Internet presence, making it hard to investigate. MacArthur has no detectable track record, although there is a Gregory MacArthur registered on Amazon.com with just one book review. That one review is of….Gene Marcial’s book. Mutual back-scratching, everywhere you look…

Maybe all this coverage is legitimate, and it’s not shady for Marcial to promote a penny stock by citing his buddies. Maybe there really is a company that will dominate and could trade for almost $0.10. However it is rather odd to have so much “independent” analysis of Implant Sciences, and no mention of the company’s warning of bankruptcy.

We will be required to repay all of our borrowings from DMRJ on September 30, 2012. Our obligations to DMRJ are secured by a security interest in substantially all of our assets. … As of April 30, 2012, the outstanding balances due to DMRJ under these instruments were $3,440,000, $1,000,000 and $23,907,000, respectively. If we are unable to repay these amounts as required, refinance our obligations to DMRJ, or negotiate extensions of these obligations, DMRJ may seize our assets and we may be forced to curtail or discontinue operations entirely and/or file for protection under bankruptcy laws.

Implant Science is in hock to DMRJ Group, which also approved some directors as a condition of financing. Any new capital has to come on DMRJ’s terms. So, can the company meet its debt obligations? The balance sheet shows negative working capital and negative shareholder equity:

  • Current assets: $5.5 million
  • Current liabilities: $35 million
  • Shareholder equity: ($29 million)

The company has lost between $12 and $16 million in each of the last three years. It has had negative operating cash flow every year. It owns $3 million in cash-equivalents (subtracting inventory from current assets). It cannot produce the $28 million that it has to repay on Sep. 30. Also troubling to any thesis about a growth stock is that its revenue is unstable and in decline:

  • 2009: $8.7 million
  • 2010: $3.5 million
  • 2011: $6.6 million

Marcial reported this as “Last year, Implant’s revenues doubled…”

The promoted hope for the company is that its trace-explosive detectors will be approved for use by the TSA. According to the company, that could happen in August. Currently, the majority of its sales are to the Third World. However, the only information about the chances for that approval comes from the company itself. And, approval doesn’t mean winning contracts in any case. It will still have to compete against larger and more reputable companies.

According to Goldman, who is paid to be optimistic, the government has allocated $40 million to “hand-held explosive trace detection devices”, Implant’s specialty. Suppose that’s true. Suppose Implant is approved to bid on that. According to Goldman, there are two other, much larger and well-established competitors: Smiths Detection and Morpho Detection. It’s surprising GE isn’t in this game, but suppose Goldman is right. Suppose Implant Sciences competes with just two others, and gets 33% of the pie. That is $12 million in revenue. Suppose its profit margins are 10%. That is $1.2 million in profit. It is losing $15 million/year, and needs $28 million by Sep. 30 to remain solvent.

It’s hard to see how this stock can be anything but a rip-off. The company has sold itself to DMRJ Group and has no ability to buy itself back. While DMRJ has an interest in supporting the business, that is quite different from supporting the common shareholder. If it is a bankrupt business with a viable product, DMRJ can seize the assets. If it is a bankrupt business with no viable product, the common shareholder still loses. If it is to survive, it must do so through dilution of the common shareholder by issuing new shares on DMRJ Group’s terms.

The most interesting thing about this, to me (maybe I’m naive), is not the pump and dump. That’s as old as the hills. It’s that reputable media like Forbes can be used to pump a penny stock. At least VFC’s Stock House disclosed a long position in his articles (no excuse for failing to mention the miserable financial condition, however). Seeking Alpha requires it. Does Forbes? If little investors can’t trust Forbes columnists not to rip them off, who can they trust? One expects somebody to have standards, somewhere.

Anavex Life Sciences Corp. (AVXL)

Tuesday, May 29th, 2012

Looks like a bankrupt penny stock scam.

Anavex Life Sciences Corp. (AVXL) reported over $3 million in bills, and under $299k in cash equivalents. It has negative equity and no analyst coverage.

According to Anavex’s quarterly report….

“Since inception on January 23, 2004, we have incurred aggregate net losses of $31,734,121 from operations. We can offer no assurance that we will ever operate profitably or that we will generate positive cash flow in the future. To date, we have not generated any revenues from our operations. Our history of losses and no revenues raise substantial doubt about our ability to continue as a going concern. As a result, our management expects the business to continue to experience negative cash flow for the foreseeable future and cannot predict when, if ever, our business might become profitable.”

“Our independent auditors have noted in their report concerning our annual financial statements for the fiscal year ended September 30, 2011 that we have incurred substantial losses since inception, which raises substantial doubt about our ability to continue as a going concern. In the event we are not able to continue operations you will likely suffer a complete loss of your investment in our securities.”

“Our research and development plans will require substantial additional future funding which could impact our operational and financial condition. Without the required additional funds, we will likely cease operations.”

Anavex has never generated revenue and has lost $30 million, nonetheless Harvey Lalach, the CEO–who seems to also on the board of directors and probably influences his own salary–pays himself almost $1 million per year in salary and stock compensation.

His prior track record looks equally scammy. He was the CEO of Assure Energy which traded as ASURF on the OTCBB and then disappeared. He was the CEO of Globalenetcare, another penny stock that has now disappeared.
http://tinyurl.com/82s25x9

You have to wonder why a company that trades in the US is headquartered in Canada and conducted its only clinical trial in Europe. Makes scrutiny difficult….

Update. Other vanished penny stock operations run by Lalach include:

  • First Cypress Technologies (FCYP), penny stock that is no longer listed and shows strong symptoms of scamming, as per stockpatrol.com
  • InstaPay Systems (IPYS), a now worthless and delisted company run by Lalach.
  • Source

PuraMed Bioscience (PMBS) & LipiGesic (penny stock scams)

Sunday, January 1st, 2012

A textbook example of a penny-stock pumping operation:

* PuraMed Bioscience (PMBS) has a “going concern” warning from its auditor, and has stated that it cannot continue business without raising money. Source: annual report.
* The company had $30,000 in sales last year, while the 2 executives paid themselves $180,000 and enormous quantities of stock (which they have to dump in order to get their money). Source: annual report
* The company has a track record of paying bills, such as those from consultants, by issuing large amounts of shares for as little as $0.15 per share. Source: annual report.
* The company has marketed as an “independent study” a study of its main product, LipiGesic, that it funded. The CEO was one of the researchers. The CEO paid himself in shares for conducting the research on LipiGesic. Source: press releases and the company’s annual report.
* LipiGesic is based on feverfew, which is a kind of daisy that anybody can grow. Yet, the company is trying to sell LipiGesic in packaging that only contains 6 doses for between $20-$30. Source: company site and Web searches.
* Feverfew is associated with side-effects, including rebound headaches and miscarriages. The company doesn’t, or didn’t until recently, warn about side-effects. Source: Web research; company Web site.
* The company is changing its Web presence in response to comments on the PMBS.OB Yahoo message board.
* The vast majority of posts to the PMBS.OB board are from accounts that post almost nowhere else. Many of those accounts were created in the last few months, for the exclusive purpose of promoting the stock.
* Many of the insiders were previously involved with Quigly Inc.’s product, Cold-EEZE. The nasal spray version of that product destroyed the sense of smell of some users, resulting in a class-action lawsuit. The officers were also sued by shareholders for unjustly enriching themselves at shareholder expense. For example, see this old Motley Fool article

…the Barron’s piece laid out an astonishing web of people “censured, barred or jailed by securities authorities for stock fraud” who have had, or still have, connections with Quigley Corp. The article ended with the kind of knowing comment Barron’s loves to issue: trading in Quigley stock was now under investigation by the Securities and Exchange Commission (SEC), so investors shouldn’t expect the stock to “levitate” forever.

Specifically, Alpert reported that Raphael D. Bloom, a disbarred stockbroker convicted in 1989 of stock fraud, had introduced company Chairman and CEO Guy Quigley to a financial consulting and public relations firm called Diversified Corporate Consulting. The “managing member” of Diversified is William A. Calvo, III, a securities lawyer who was disbarred in Florida state court, and later in Federal Court, for his participation in a fraudulent public offering…..

Can you short penny stocks? Actually, some brokers allow it. The maintenance requirements are high, however.