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With Resonant (RESN), an RF filter resonator designer, the more design wins they claim they have, their revenue gets lower or flat, which is nonsensical.

Resonant’s RF filter design simulator process is not unique, and is done by all of the top RF filter manufacturers.

Resonant’s own lead engineer says its XBAR resonator is a long way from becoming a commercial product. It may never get there.

Without a fabrication facility to test the simulator software design, it is hard to improve the software.

Resonant calls XBAR a “breakthrough” yet there are no published white papers or data sheets on it.

White Diamond’s proprietary diligence identified new info that suggests Accelerate Diagnostic’s (AXDX) Pheno system is only a niche product.

The Pheno system is not capable of replacing tissue culture methods due to design flaws and a questionable value proposition.

Management has missed reagent revenues per system target by over 30% and no one is talking about it.

Pheno system lease agreements do not penalize hospitals for low test volumes, which hurts future annuity revenues and AXDX eats the cost for upfront installation and validation.

Highly anticipated results of the upcoming Mayo/UCLA study will likely be a bust, revealing no statistically significant improvement in LOS (Length Of Stay) or patient mortality.

See a shortened version of the report on Seeking Alpha here.

United Health Products reached a $400M market valuation on speculative hopes related to its HemoStyp surgical gauze.

UEEC’s only product, HemoStyp, is a 17-year-old, cheap commodity gauze made in China with no published data or clinicians supporting it.

UEEC’s website discloses claims of pharmaceutical activity of its HemoStyp, which can compromise FDA 510K submission approval.

The company has been operating from a PO Box with no staff and no R&D investment for many years.

The company suggests a story of a product ready for FDA approval and a big money acquisition, with no factual support.

Follow-up report: United Health Products’ Press Releases Can Not Be Taken At Face Value

Discovery Gold Corp (DCGD) is a $150M+ empty shell – an unheard of valuation for a shell with no cash, no assets, and no business.

Investors appear to believe the company’s new CEO, Justin Costello, is an exceptional businessman in the cannabis sector, but our research reveals that is not the case.

Our research suggests that Costello didn’t graduate from Harvard Business School, despite it saying that in DCGD’s SEC filing and promotional websites.

Our research shows that Costello’s company, GRN Funds, is not a registered hedge fund despite the company saying that it is.

We have tipped off the SEC to these falsehoods and submitted this report to the agency.

Synthesis Energy Systems (SES) has a failed clean energy technology called coal gasification. After years of trying to make it work, the company generates no revenues today.

SES doubled in one week ahead of its 8 for 1 reverse split on 7/22/19, now is good timing for a short.

SES potential asset sale to Australian Future Energy (AFE) is non-sensical. AFE has no developed projects and was funded by SES.

Other stocks have recently been decimated after reverse splits like Neuralstem (CUR) did a 20 for 1 reverse split on 7/18/19, the stock ran up into it, and subsequently fell 60% to new lows in five days.

 

Applied Energetics (AERG) became an empty shell in 2014 and remained that way for 2.5 years.

There have been no significant achievements since executives laid out a plan to revive the company in 2017.

The share count has more than doubled since 2017, and the stock price has risen over 400% since the beginning of the year.

A whopping 48.7 million shares that were bought for $0.06 or less are now getting registered for sale.

On 5/24/19, the company issued 2.5 million warrants at a $0.06 exercise price, which we believe indicates what the stock is worth.

Although invented 10 years ago, BioSig’s PURE EP System add-on device has had no published clinical data, only bench and animal studies.

The company said they would present clinical data at the Heart Rhythm Society (HRS) conference, but they did not do it, suggesting the data is below expectations.

Cardiologists we have asked have said that there is no need for this add-on, conventional EP machine signals are already clear enough.

Our research reveals that the PURE EP is unnecessary for the treatment of Atrial Fibrillation (AF), which accounts for over 90% of all heart ablations.

2.15M shares for shareholders just got registered to be sold, and the company needs to raise $10s of millions for their upcoming product launch.

Summary

Soliton is a Reg A+ IPO, which means they could not get institutional investors, so they had to raise money from crowdfunding.

SOLY has put out 17 PRs since March, fueling a rally with no substance in our opinion.

SOLY’s first lock-up expiry is May 20th, and we believe it will be a bloodbath for the stock, similar to what happened to Reg A+ stock Adomani.

SOLY’s tattoo and cellulite removal devices are still in the pilot stage, unproven with few studies done.

SOLY’s biggest holder, Remeditex, has sold every significant position it has filed on sec.gov, and we doubt SOLY will be an exception.

Establishment Labs (ESTA) has taken the breast implant industry by storm with its next level technology, 6th generation, Motiva Implants.

The reoperation rate is under 1% with a Motiva implant, no Motiva patient has gotten lymphoma, and the Motiva Ergonomix implants are a game changer.

A recent bearish report on ESTA discussed its related party transactions and an allegedly biased clinical study. But we conclude that these are not a big deal.

The FDA recently sent a warning letter about breast implant safety, which we believe will help ESTA because studies show its implants have a lower number of adverse events.

The breast implant industry is growing, and the growth rate could increase on a new perception of safety from Motiva implants.

Torchlight Energy has an enterprise value of over $130M. The company’s entire perceived value is based on possible oil in its Orogrande Project.

TRCH only paid $3.35M in cash and stock for 75% of the Orogrande in August 2014 when oil prices were much higher than today.

TRCH has little cash with increasing debt, and if it cannot sell the Orogrande, we believe the company is finished.

In April 2018, TRCH said it would sell its Hazel Project, but never did, and raised equity instead.

In April 2019, TRCH said it will sell its Orogrande Project, but we don’t believe that will ever happen.

We believe the 400% appreciation of Conformis (CFMS) in 2019 is not from any positive fundamental developments, but from hype and speculation.

Its customizable hip implant, reported at AAOS, is not new, has been FDA approved since 2017, and is too early in clinical evaluation to justify a rally from it.

CFMS business has many flaws: its customizable implants have not been shown to be an improvement to standard implants, yet they are more expensive and have a longer implant process.

The company made small improvements in Q418, but they do not address fundamental business flaws and increase CFMS risk exposure.

Strapped for cash and lacking market trust, CFMS was forced to collaborate with last resort financier, Lincoln Park Capital.

American Superconductor stock has risen over 100% since July 2018 on little progress in its businesses. We expect a fade back to $7 or less.

The company has had significant losses for the past 19 out of 20 years with its grid and wind businesses, a pattern we foresee continuing for many years to come.

Most of AMSC’s rally has come from puffy PRs and hype regarding its resilient electric grid and ship protection services government businesses.

We believe both of these businesses, which are in the trial stage, are impractical, and we don’t believe the government will spend a significant amount of funds on them.

There has never been a cyber or terrorist attack on an electric grid in the US. Ocean mines have not been an issue since WWII.

T2 Biosystems’ recent Breakthrough Device designation by the FDA isn’t an acknowledgement of the device’s effectiveness or clinical value proposition, only that it diagnoses life-threatening conditions.

The T2Dx Instrument adds additional hospital expense but provides little clinical value, hence the miniscule sales numbers.

The value of the T2Bacteria test is low because it does not measure bacterial susceptibility to antibiotics and, therefore, does not change clinical practice. Other similar technologies have been flops.

In every 2018 quarter, TTOO’s unsustainable research revenue was higher than its much more important product revenue.

TTOO has $44M in debt, paying interest at an usurious 12.5% rate.

Apyx is a provider of J-Plasma technology that has failed every medical application and is now only targeted for two off-label cosmetic applications.

J-Plasma use for dermal resurfacing has nasty side effects and heals very slowly – most cosmetic surgeons we have surveyed will not touch it with a 10-foot pole.

Apyx did not reveal the results of its clinical study on J-Plasma use for dermal resurfacing – a red flag that it may have missed its endpoints.

An almost identical product to J-Plasma called Portrait PSR has been a commercial failure for dermal resurfacing. J-Plasma appears to be following the same path.

Apyx’s new CEO, Charlie Goodwin, was allegedly engaged in fraudulent sales activities at Olympus/Gyrus, which include submitting fake claims to Medicare and making illegal payments to physicians and hospitals.

  • NBEV is a $500M market cap struggling US beverage roll-up attempting to reinvent itself by marketing CBD-infused drinks
  • The Company’s recent ‘key’ licensing deal to sell Marley branded CBD drinks comes with unfavorable economics as NBEV will pay a high 50% of gross margin for the license.
  • Insiders lock-up agreement expires on 2/6/19, which will allow over 6 million shares to be sold.
  • NBEV has run up 100% since its November financing at $3.50 per share without significant fundamental news in our view.
  • NBEV has burned through most of its recent cash raise from a non-core acquisition, we expect more near-term equity financings.

FSD Pharma’s founder, Thomas Fairfull, and director, Anthony Durkacz, have a history of value destruction. Durkacz had an average loss of 92% over 11 stocks in which he had involvement.

The company spent $8 million on listing fees, which is a head-scratcher, as it is multiple times larger than what comps spend.

Durkacz has received an astounding sum of over C$28.7 million total current value in cash and warrants for being both a director and broker for FSD.

FSD Pharma routinely announces investing in other small cannabis companies, but so far has shown little follow-through.

We have a price target on FSD of C$0.09 per share, which was its pre-RTO financing price less than a year ago.

Helius Medical is a reverse-merger, single-product, pre-revenue medical device company with a unique device that delivers stimulation to the tongue to treat a type of brain injury.

Evidence suggests the device is likely a placebo, and positive patient results were from the intense physical therapy treatment, not the device.

The founders, which include Montel Williams and the former CEO who is now a fugitive, have a history of questionable marketing practices.

The phase III trial missed its primary effectiveness endpoint, thus reducing the chances of FDA approval and reimbursement coverage.

The fact that Helius has redacted important trial info should cause investors concern about the potential effectiveness of the device.

Each 2018 quarter, Orchids Paper (TIS) has had a consecutively worse financial performance.

For the past two quarters, Orchids’ gross margin has been almost 0%, while its SG&A and interest expense have ballooned to unsustainable levels.

We believe the banks won’t extend Orchids deadline for a sale of its assets, and it will file for Ch 11 bankruptcy by the end of the year.

TIS recently rose over 100% on insignificant news, which we believe creates a good short opportunity.

Next quarter, marketing for new customers will be even harder for Orchids as competing ultra-premium tissue manufacturing facilities will begin production.

TransEnterix (TRXC) was originally funded by a notorious investor recently charged by the SEC for orchestrating pump and dumps.

A TRXC director just sold ~$23 million of stock; TRXC has a historical pattern of retail fueled rallies that end with insider selling and major stock declines.

Major flaws prevent TRXC’s Senhance surgical robot from being used commercially, it’s mainly used clinically and for training purposes.

Side-by-side clinical studies of the Senhance show inferior results versus standard laparoscopy.

We see near-term downside of 30-50%, longer-term, TRXC is very likely a zero.

We found Namaste’s consultants are actually officers of the company, including the head of its audit committee.

While other companies spin off assets to shareholders, Namaste instead sold an asset to an officer at a loss. He is now taking it public for his gain.

Namaste acquired AF Trading, which appears to be owned by an employee of Namaste, yet another related-party transaction.

Cannmart’s head office is tiny and does not appear to be worthy of the title “Amazon of cannabis.”

Namaste insiders may be profiting at shareholders’ expense.

Generation Next Franchise Brands Is A House Made Of Frozen Yogurt That’s About To Melt

  • Generation Next Franchise Brands’ (VEND) $130M market cap is based on the potential success of its sole product, a frozen yogurt vending machine called “Reis & Irvy’s” or “Froyo Robot”.
  • As the company has only just begun delivering Froyos, its revenues are miniscule. The company also loses a lot of money, reporting a $5M loss in quarter ended 3/31/18, a $3.8M loss in 12/31/17, and a $4M loss in 9/30/17.
  • We conducted in-field research on the company’s new Froyo installation in Philadelphia. In the day we were there, we witnessed it made considerably less sales than the company is claiming it does.
  • Upcoming catalysts: 12.8 million VEND shares sold in a private placement at $0.50 apiece on January 2nd will have a lockup expiry on July 2nd. This will double the float. We believe most of these shares will be sold. Another negative catalyst is VEND has been trying for months to get investors involved in their next private placement at $1.50 per share. This private placement will happen any day now as the company is almost broke and has a negative shareholders equity.
  • The Froyo is not “the future of frozen yogurt” like the company claims. It was created in 2007 and has already been tried and commercially failed. There are several YouTube videos that are 5+ years old of almost the exact same Froyo robot as VEND is marketing today. VEND acquired Reis & Irvy’s intellectual property assets from its creator, Robofusion, in December, 2016. There are also many other frozen yogurt vending machines being sold today.
  • VEND’s healthy snacks vending machine business has commercially failed and was discontinued by the company in 2016. We believe the Froyo is an even worse vending machine idea and will also fail commercially.
  • VEND management was tried and convicted of fraud in regards to statements made to customers about their last vending machine.
  • VEND has only just begun delivering Froyos this month, despite having reportedly booked 1,000 units aggregating $41 million in deferred revenues, dating back to 2016.
  • In its 10-Q for quarter ended 3/31/18, VEND reported $36.3M in customer advances and deferred revenues in its current liabilities. Even though the company received $23M in cash received on the Froyo orders, the company has instead spent that cash on operating expenses as it’s almost broke. The company reported a stockholders deficit of ($17.7M).
  • VEND reported unrestricted cash of only $5.3M in quarter ended 3/31/18. At a $4M+ loss per quarter, not counting cash coming in from new orders, that would put the cash balance at a little over $1M by 6/30/18.
  • VEND has recently spent more than normal on R&D. It spent $1.7M last quarter, compared to $435K on quarter ended 3/31/17.
  • In the latest 10-Q it states: “Given our current cash position, we may be forced to curtail our plans by delaying or suspending the production and purchase of frozen yogurt robots until such time that we may be able to prepay for the robots.” What that means is if they can’t raise the money to purchase the robots that their customers pre-ordered from them, then the company will either have to raise more money, or declare bankruptcy and not fulfill their obligations.
  • The total amount of daily and monthly expenses to maintain a Froyo are very high, and make it a bad investment at almost any type of location. Additionally, 12% of franchisee revenues go to VEND as a franchise fee. We break down the expenses per Froyo in the report. In order to break even, each Froyo will have to generate $2,840 per month. At $6 per cup of frozen yogurt, that’s 15 cups sold every day. Not a realistic number in almost any location.
  • The company has a list of possible locations for the Froyo however most do not have the needed foot traffic of prospective customers to make it a suitable location.
  • There’s no institutional ownership in VEND. Just a bunch of scattered retail investors.
  • VEND’s only competitor, the Frobot, is the only other frozen yogurt vending machine company, has the same number of employees as VEND, about 43, and an estimated annual revenue of only $4.5M. VEND will likely not have significantly higher revenues than that over the long term, making the stock significantly overvalued today.

 

 

Viveve Medical (VIVE) had a horrendous Q1 2018 report with a big revenue miss, decreased gross margins, and a $12M loss.

With the company’s sizable expenses, it will take over 4x as many sales as they have now just to have a break-even year.

The Viveve System got FDA 510(k) regulatory clearance in the US in October 2016, almost two years ago, there’s now market saturation, and the easy sales have already been taken.

Viveve management’s recent actions show desperation, such as the CEO’s abrupt departure and the permanent replacement with the CFO.

Viveve is now attempting to have other indications for the Viveve System that we do not believe will work, and expand to other products, but those sales have flopped.

Level Brands (LEVB) is among the latest 2017 Reg A+ IPOs – so far they are all trading below their IPO price.

Level Brands CEO, Martin A. Sumichrast, has a long, checkered past. His latest partner was running a huge Ponzi scheme.

Level Brands hired RedChip which has been aggressively promoting the stock on TV and in email and social media campaigns ahead of the lock-up expiry on May 17th.

Level Brands does not produce any products, it is a newly formed marketing company for products that have not generated much sales.

The company made a costly deal with Kathy Ireland just to use her brand name. She’s not an executive or director of the company.

Capstone Turbine has gone up over 100% in the past 3 months, but business is not doing well as they recently missed revenue consensus.

The expensive microturbine can’t compete with cheap electricity from solar and wind energy and cheaper per-watt engine generators.

Capstone is currently paying for road shows and investor presentations, not to sell microturbines, but to sell stock.

We believe Capstone will remain unprofitable for many years to come, keep burning cash, and keep selling stock to stay afloat.

Capstone’s chance for profitability is Russia, but oil and gas needs to go up considerably for more remote O&G installations.

Longfin had a Reg A+ IPO on December 13, 2017, originally at a $382.5M market cap which ballooned to its $3.27B market cap today from its acquisition of Ziddu.

Ziddu, a cryptocurrency microlending company, has a business model that doesn’t make sense because Ethereum is too volatile to use for loans.

Ziddu.com’s website history shows that Ziddu coin is only a basic ethereum token and wallet that got rebranded by Longfin in December 2017 as a microlending story.

Longfin recently engaged in dilutive financing with Hudson Bay Capital, a fund known for financing microcap, speculative companies that most funds would not invest.

Longfin’s company headquarters in New York City is a WeWork shared office space for fledgling entrepreneurs.

Nymox drug, fexapotide, to treat enlarged prostate, is about to have its marketing application decided in Europe within a few months, and we’re betting on a rejection.

Nymox did two phase 3 trials for fexapotide in the US with a total of 1,000 patients testing throughout one year. Both trials failed to show improvement over placebo.

Years after the phase 3 trials, Nymox reported follow-up studies with positive data to those trials, but evidence shows it is unreliable data.

For Nymox’s follow-up studies, there was no independent verification party, no pre-specified endpoints, and it’s unlikely that a drug’s efficacy would take effect years later, after having no effect at one year.

Nymox switched from trying to get approval in the US to Europe, but recent events show Europe might actually be tougher to get approval.

Although we started shorting Ampio (AMPE) in the high $3s, we continue to hold our short position. We don’t believe that Ampio’s osteoarthritis drug, Ampion, will ever get approved, and the company will likely be required by the FDA to do another trial to seek approval. Their next trial will likely have the same result as their previous Ampion trial, which failed to show improvement over saline injections.   If our thesis is true, the stock will go sub $2 in short order. The following are 10 reasons why we are confident in our thesis.

  1. In Ampio’s latest trial on its osteoarthritis drug, Ampion, it wasn’t compared to a placebo, as the CEO, Michael Macaluso, stated December 14, 2017 in this conference call at time 11:52. He states: “This was not a saline controlled trial.”
  2. Ampio’s recent JP Morgan presentation on January 8th has no information about a path to approval, nor does it say the company is confident that it will get approved.
  3. The CEO states about the Ampion trial in this conference recording in March 2017, that out of 9 trial options CBER (Center for Biologics Evaluation and Research) gave Ampio for an FDA-approvable trial, Ampion’s trial was none of those 9 options. He stated this at time 51:00 in the recording.
  4. Ampion’s previous larger phase 3 trial, which was randomized, saline-controlled and done under real SPA, failed. This was announced in June, 2016.
  5. On January 2, Adam Feuerstein published an article stating that saline is just as effective a treatment as Ampion. We trust Adam F’s judgement as a top biotech analyst.
  6. This PR from May 1, 2017, announced the Ampion trial. It uses the words “unmet medical need” in parentheses, which in itself is odd, and the drug doesn’t have fast track with the FDA.
  7. Ampio’s CEO has a shady background, he was CEO of a previous company Isolagen that had numerous transgressions against shareholders. They got hit with a shareholder lawsuit that they settled in 2008 as shown here.
  8. Ampio was trading below $1 between February and October, 2017. That’s an indication that biotech investors didn’t take this trial seriously.
  9. A scientific paper from the World Journal of Orthopedics, published here, shows that drugs have an exceptionally high placebo effect in osteoarthritis trials in particular.
  10. As shown in its latest 10-Q, Ampio issued 11M units at $0.60 apiece for $66M in gross proceeds. Each unit represented one share and one warrant at a $0.76 exercise price. Some of those warrants are now being exercised, as stated in the December 14, 2017 conference call. This dilutes the outstanding shares, and the increased trading volume will more easily push the stock price down. Ampio’s fully diluted share count is roughly 100M.

At only 19% borrow rate on Interactive Brokers, we are fine holding our AMPE short position for 2-3 weeks as we expect the traders and weak hands to churn out of the stock as it declines to below $2 per share.

Position Update: We remain short AMPE. On 3/12/18, we published a follow-up article on Seeking Alpha in regards to the CEO’s conference call on 3/7/18, where he backtracked from claims of partnership negotiations. See article here.

ClearSign Combustion’s Duplex Technology Is A Commercial Failure, The Stock’s Downtrend Will Continue

  • ClearSign’s green energy Duplex technology has been tested by refineries for many years but has resulted in very few adoptions. This is because oil and gas companies care about profits, not pollution control.
  • Evidence suggests the Duplex technology sacrifices some production in order to decrease emissions.
  • We interviewed the inventor of the Dupex Technology and he had some interesting insights about the company.
  • ClearSign’s over 100% rally from Asia and Middle East expansion news is reversing as new locations likely won’t bring new success to an already failed technology.
  • With the Trump administration in power, the anti-pollution technology sector is out of favor.

Read our add-on article published on 1/17/18: An Engineer’s Physics report On How ClearSign’s Duplex Technology Is Inefficient

Marrone Bio is broke and approaching bankruptcy with $2M cash burn per month and over $23M in debt principal due next year.

The company has not been able to significantly decrease its high quarterly losses with its tough business of selling niche bio-based pesticides.

The company is in a desperate situation with directors leaving and a key emergency lender appears to have gotten cold feet.

We believe a big equity raise will happen any day now and will be similar to SenesTech’s recent raise which plummeted its stock by 70%.

We have reached out to over 100 European surgeons who use the da Vinci surgical robot. The surgeons’ opinions on the TransEnterix Senhance System were almost all negative.

TransEnterix has been aggressively marketing the Senhance System in Europe since late 2015 and hasn’t sold one in Europe since February 2017. Has only sold two systems in total in Europe.

TransEnterix CEO Todd Pope has always been salesy and over-enthusiastic in the earnings calls. We believe his statements should be taken with a grain of salt.

Even if TransEnterix miraculously is able to make revenues of $100M in a year, it will still take a $30M+ net loss mainly because its gross margin is only 40%.

Our research overwhelmingly shows that the Senhance will not sell well in the US just like it has hardly sold any in Europe.

PolarityTE is a reverse-merger, pre-revenue, pre-clinical tissue regeneration med-tech company with a main product that’s patent-pending.

PolarityTE’s first product, SkinTE, just got registered for commercialization through a non-FDA approval route. The company is ready to sell to physicians who will contribute to SkinTE’s clinical studies.

SkinTE has generated a lot of buzz, as COOL stock has skyrocketed over 800% since the beginning of the year to a fully diluted market cap of over $400 million.

Is this technology revolutionary, with a large addressable skin wound market, or is it ineffective or in a niche market? With sales and studies underway, the answers will come soon.

The company’s September preferred stock financings have price protection on the conversion price, which is akin to death-spiral financing and adds to our skepticism.

In October 2016, Everspin (MRAM) IPOed at $8 per share and traded there until a Barron’s article in May caused a strong rally. It is now fading back to $8.

Everspin’s MRAM is too expensive to compete with DRAM, as DRAM will continue to get cheaper and better, and Moore’s Law will continue for many years to come.

Everspin has overly high analyst estimates, and management has hinted that it will miss guidance.

Small companies like Everspin do not last in the memory chip business, economies of scale are essential for profitability, and system designers are reluctant to purchase from a small, and sole, vendor.

At $5M per quarter cash burn, Everspin will need to do an equity raise sometime next year.

ShiftPixy uses a social networking app to match employers with part-time “shift” employees.

ShiftPixy’s CEO, Scott Absher, has a checkered past with some pump and dump scams where the SEC had to step in.

ShiftPixy management talks a lot about the new app, but it’s dysfunctional, and has very few downloads after being released a month ago.

We believe ShiftPixy is nothing but a struggling staffing agency trying to look like it has a revolutionary “Uber-like” technology.

With very small net revenue and high expenses, we see 50%+ downside in the stock within a year, and likely an eventual delisting.

  • At an adjusted book value of $0.066, GRST has limited downside, and is a potential 10x bagger over time.
  • Ethema Health owns two treatment centers, runs one, rents the other, and is currently acquiring a detox center.
  • Ethema Health’s treatment center in Delray Beach, Florida is breakeven at only 14% capacity.
  • There are only two other publically traded behavioral health companies – AAC Holdings (AAC) and Acadia Healthcare (ACHC) and they have gone on a strong uptrend recently. We expect GRST to go on a similar tear.
  • Management has the proper steps in place to fill up its facilities with patients and demonstrate superior treatment to its competition.

In the past month, Delcath has risen 1000%+ on promotional hype and no fundamental news.

Delcath is engaging in death spiral financing, the convertible note holders can buy shares at a 15% discount to the recent market price and then immediately sell in the open market.

Delcath’s outstanding share count went from 39 million on February 10, 2017, to 374.4 million on June 5th, 2017, and 439 million on July 5th.

Delcath is conducting clinical trials on its same technology that failed to be approved by the FDA in 2013.

Despite being a struggling company, Delcath’s gluttonous executives award themselves high salaries, fly first class, and are in a ritzy office located in midtown Manhattan.

Specialty pharma company PDL BioPharma has invested a lot in its acquisition of hypertension drug Tekturna, and has hired a 40 person salesforce solely for it.

PDL’s salesforce is already rolling with convincing doctors and copayers to prescribe and pay for Tekturna, and its sales will grow.

Despite reaching a low in its current downtrend, PDL expects to remain profitable, has a large cash position, and a share buyback is in place.

It has very low interest rates with its convertible bonds, and there is very little dilution risk because the bond conversion price is far above the current share price.

PDL BioPharma has a book value of about $4.50, almost double the current share price.

If Ominto Was A Private Company, It Would Be Worth A Fraction Of Its Current Price

  • Ominto, an online cash back provider, has risen over 150% solely on the hype and exposure of being uplisted to the Nasdaq from the OTC exchange on 2/14/17.
  • It has tiny sales, stagnant growth and consistently loses $1M-$3M per quarter over the past four years.
  • A CEO of a top cash back website we interviewed hasn’t even heard of Ominto or its cash back website Dubli.com.
  • Ominto has made what appears to be a non-arm’s length merger with a company that has a completely different business.
  • We estimate Ominto’s value to be $1-$2 per share, for an eventual 90% decline.

Matinas BioPharma (MTNB) is one of those rare, no-brainer, diamond in the rough, short ideas.

Matinas BioPharma’s stock has moved from the OTC to the NYSE MKT on March 2, after running up 200% in two months. It has since fallen 20%.

We value MTNB at $0.63 per share, and believe the stock will continue downtrending for a 45-80% decline from here.

We uncovered evidence that Matinas’s largest shareholder, GJG Capital, is covertly run by a barred broker, and on 3/15/17 converted warrants into common stock, suggesting it’s ready to sell.

Matinas’ entire pipeline consists of two preclinical drugs that were acquired from Rutgers University in 2015 for $2.5M. One of them, MAT2203, had already failed with another biotech company.

Matinas has yet to present clinical efficacy data on its two drugs, yet its market cap is over $200M, we believe it should be below $100M.

 

Lead attorney for Straight Path’s shareholder lawsuit says Straight Path management perpetrated a “years-long fraud”.

“Use it or lose it” is the FCC’s harsh attitude towards unused spectrum like Straight Path’s. Straight Path has a one year deadline to sell its spectrum.

Evidence from the FCC, telecoms, and technology firms all suggest 28GHz spectrum is far superior to 39GHz spectrum. 86% of Straight Path’s spectrum is 39GHz, 14% is 28GHz.

Verizon has the option to buy XO’s spectrum for only $200M, which the vast majority is 28GHz. XO has almost as much total spectrum as Straight Path in MHz-POP.

We believe Straight Path raises many red flags with its statements and actions.

While there has been talk of doing away with private prisons for years, investors of private prison operator stocks GEO Group (GEO) and Corrections Corp (CXW) haven’t taken it too seriously. That is, until August 18, 2016, which was a dark day for privately run prison companies. Corrections Corp (CXW) opened that day at $27.06, and closed at $17.57 for a 35% loss. GEO Group (GEO) opened at $32.32 and closed at $19.51 for a 40% loss. Since then, GEO has recovered a little bit, and CXW has continually slid further down.

With Scientific Games large size, the recent CEO change was likely the right choice and investors should buy on current weakness.

Billionaire Ron Perelman, a 40% shareholder of SGMS, late last year bought shares at $8 so that price may serve as a floor of its current weakness.

With the rise and spread of legalized gambling worldwide, there are many positive upcoming catalysts for Scientific Games.

Scientific Games technology is thriving in the hot online gaming market and in person gaming.

The current global economic boom is good for the gaming industry.

Hyperkalemia, or high potassium in the blood, is unnecessary to treat unless it’s at a severe level.

Most medicare and most insurance companies don’t cover Veltassa for a reason.

Veltassa is inferior to its competitor, ZS-9, because ZS-9 can treat both acute and chronic hyperkalemia patients, while Veltassa can only treat the chronic market.

Veltassa’s black box label is a big drawback.There are problems with the drug and its trials, as revealed by government-funded researchers.

A potential Veltassa black swan event, And Relypsa’s CEO, John Orwin’s previous company’s deadly drug.

With energy prices low, Synthesis Energy’s (SYMX) syngas technology is even more uneconomical than it was when energy prices were high.

The company hasn’t had a profitable quarter in over 7 years.

SYMX has a shady past with deals that never go through, and that won’t change despite management’s big talk.

Even though its production is idled, the company is putting out PRs saying it will take on more projects in order to excite retail investors.

– We have a price target on TransEnterix (TRXC) of $1.20 by the end of the year. TRXC real goal is to sell stock to uninformed retail investors. The company, insiders, and institutional shareholders are selling their shares, or filing to, on this recent pump.

– TRXC has three products: their SPIDER surgical system, a failed product which they are discontinuing, and two surgical robots: the ALF-X and the SurgiBot. Evidence shows both are impractical and have little to offer surgeons.

– The ALF-X has already been a commercial failure. It has been on the market since 2012 with the plan to take market share from Intuitive Surgical (ISRG). The ALF-X didn’t sell a single unit in 2013, 2014, or 2015. TRXC acquired the ALF-X for $25M in cash plus stock in late 2015 for the purpose to parade it in front of uninformed investors.

– The SurgiBot is an impractical surgical robot that TRXC has done enough for it to likely gain FDA 510(k) clearance. It will also likely be a commercial failure like the ALF-X and SPIDER.

– In TRXC sponsored studies of the SurgiBot, surgeons say it “has potential” but isn’t quite there yet.

– TRXC management knows its products aren’t very good, one indication of this is the lack of patents. TRXC has only one US patent for its SurgiBot. 

– Management aren’t robotics experts, but their competitors are.

– Johnson & Johnson has its own surgical robot company that will compete with TRXC.

– TRXC’s CFO, Joseph Slattery, former company was Trans1 which settled with the US Department Of Justice for $6M for medicare fraud.

ReWalk’s (RWLK) Veterans Affairs (VA) coverage was expected from the last two earnings calls and already partially priced in.

No sell-side analyst showed excitement on the coverage news. Barclay’s analyst raised the PT from $9 to $11, 25% below the current price.

A negative catalyst is coming up: With only $25M in cash, and $6M per quarter cash burn, RWLK is filed and ready to do a large share dilution soon.

Due to a low gross profit margin, RWLK needs to sell at least 2,000 exoskeletons per year to break even. It will only sell about 70 in 2015.

RWLK’s President and Founder resigned last month. He previously criticized their exoskeleton as being “too bulky”.

Lack of scale will prevent RWLK from expanding to many other countries.

– Emerge Energy Services (EMES) had an atrocious 3rd quarter and is a bankruptcy risk. We have a $2.50 price target on the stock.

– There are three possible upcoming negative catalysts for EMES: 1.The amendment of its credit facility 2. The start of an ATM equity financing. 3. The 10-Q with “going concern” language in it.

– OPEC is picking up production while US shale is decreasing. Iraq is suddenly flooding the US market with crude! Kuwait’s OPEC rep says the oil glut could last 5 years.

– EMES earnings call sounded pessimistic, but management spun some M&A false hope which propped up the stock price.

– The price action of EMES will likely mimic that of ZINC, which bounced off lows and quickly faded.
Note: on 11/15 we posted a follow-up report on EMES: Has the bear case gotten stronger?

 

Horsehead Holdings (ZINC) has risen 100% over the past two weeks from a spike up in zinc prices, which has created a ripe shorting opportunity.

If zinc prices don’t rise soon, Horsehead can go bankrupt in two years. Its zinc hedge expires after 2015.

Horsehead has had perpetual problems getting its biggest plant, Mooresboro, to half capacity. Its latest update on 10/1/15 wasn’t good.

Horsehead is in dire need of cash but can’t issue new debt, because its 2017 convertible bonds currently have a yield-to-maturity of 35%, way too high. Issuing equity will also be very hard in such an unfavorable commodities sector.

We agree with Goldman Sachs that the Glencore production cuts are “not a reason to get bullish” on zinc, and zinc will give back its recent gains on the Glencore news.

 

– VBL Therapeutics (VBLT) put out a PR for its ovarian cancer drug, VB-111 with the word “positive” in the title. However, the drug is a complete failure and the data isn’t positive at all.

– The word “positive” in the title mislead investors and is what caused the stock to rise from a close on May 13th of $4.08 to the mid $5 range today.

– VB-111 + chemotherapy combo has a worse response rate than chemo treatments alone. Avastin +chemo for ovarian cancer showed a much better response rate than both the VB-111+chemo combo and chemo alone.

– VB-111 didn’t show any improvement of reduction in muellerian (ovarian cancer) tumors , so had a 0% objective response rate.

– VB-111 is also very toxic, causing many serious adverse events, and even causing a death in the small 14 patient trial.

– VB-111 is ineffective and toxic, and should not be used in any more trials, for any type of cancer.

– VB-111 was VBLT’s last drug, and it has nothing more in its pipeline. The company is worth its cash value or less.

In the after hours on May 13th, VBL Therapeutics (VBLT), put out a PR with the title: VBL Therapeutics To Present Positive Phase 1 /2 Data for VB-111 in Recurrent Platinum-Resistant Mullerian Cancer at ASCO Annual Meeting.

Because the word “positive” is in the title, investors thought the trial was successful and the stock rose from a close of $4.08 on May 13th, to over $7 on May 14. The stock has now settled in the $5-$6 range. But the truth is, the data is not positive, it’s very negative. VB-111 is a complete failure.  The data shows that not only is the drug ineffective in fighting tumors, but is also very toxic and dangerous and shouldn’t be used in any more trials. The stock should have fallen on the data, not risen. There should be some legal ramifications for the company to put such a misleading title. The following data points and trial comparisons with other drugs show why VB-111 is a failure and should be discarded.

CA 125 Is Not The Proper Response Criteria

Here is the VB-111 ASCO data for mullerian cancer (which is primarily ovarian cancer) that VLBT released on May 13th . VLBT used the biomarker CA 125 to state that VB-111 had a 57% response rate. This alone is a red flag. CA 125 is a protein that is commonly used as a biomarker to predict what kind of response certain drugs will give. It isn’t meant to be used as the final measure of a response. For example this report states the lack of reliability of CA 125: “Three patients would have terminated treatment prematurely had CA125 had been used.”

RECIST (Response Evaluation Criteria in Solid Tumors) is the golden standard to evaluate responses. RECIST shows ORR (objective response rates), while CA 125 just shows “response rates” that aren’t objective. RECIST measures the tumor level after the patient takes the drug. The RECIST partial and complete responses (both tumor shrinkages) are what really matters in evaluating the drug’s efficacy.

Using CA 125 criteria, VB-111 had a 57% response rate, and that’s probably what people think is positive and why the stock went up. However, using RECIST, VB-111 had a shocking 0% ORR.  8 patients out of 13 had a stable disease response from the RECIST criteria but in order to get an ORR, RECIST requires some improvements in shrinking the tumor. There were no partial or complete responses using the RECIST criteria. For an example of a better result from an ovarian cancer trial, here it states the results of Clovis (CLVS) treatment of ovarian cancer that showed a RECIST ORR of 65% and 40%.

But wait, the results for VB-111 get even worse. The patients in the study weren’t only on VB-111, but also on chemotherapy: paclitaxel. It’s a combination study. Usually some patients on chemo alone should get a RECIST partial response. Yet in combination with VB-111, none of the patients even got that. Patients also usually get a longer median progression free survival (PFS) on chemotherapy alone than with the VB-111+chemo combo. Here is a study from 2003 for mullerian tumors using a doxorubicin and paclitaxel combination. There were 4 patients with a complete response and 7 with a partial response out of 38 patients for an ORR of 29%.

Avastin Is Far Superior To VB-111

Here are the results of a phase III trial evaluating Avastin (bevacizumab) plus chemotherapy for platinum-resistant recurrent ovarian cancer. It shows the results using chemotherapy alone, and an Avastin plus chemotherapy combo. The following is a chart of the results:

download

The above column, CT, is chemotherapy alone, and BEV+CT is the Avastin + chemo combo. The fourth line down, the median, shows the progression free survival (PFS). For CT, it shows the median PFS is 3.4 months, and BEV+CT is 6.7 months. Now, looking back at VB-111 data, the median PFS is only 2.0 months. That’s less than the median PFS of the chemotherapy alone, which is 3.4 months.

Then, the next line down in the above chart is the ORR (objective response rate). The CT alone is 12.6%, BEV+CT is 30.9%. The VB-111 + chemo ORR is 0%. Again, further data shows patients would have been better off with chemo alone instead of in combination with VB-111.

Adverse Events

Now, let’s look at the adverse events. When measuring the severity of adverse events, there are five grades. Grades 1 and 2 aren’t so bad, but grades 3-5 are really bad. In the BEV + CT data above, it shows that 14% of the 179 patients had grade ≥ 3 adverse events and no deaths. VB-111 data had 11 grade ≥ 3 adverse events with only 14 patients – and one death! This shows that VB-111 is a very toxic and dangerous drug.

Mullerian Cancer Is Primarily Ovarian Cancer

Some people get confused with the difference between mullerian and ovarian cancer. A mullerian tumor is a malignant neoplasm found in the female genitalia. Ovarian cancer is the major type of mullerian cancer. VBLT mostly enrolled ovarian cancer patients, as shown on clinicaltrials.gov. It says “Platinum Resistant Ovarian Cancer” for the VB-111 study, exactly the same as the Avastin study shown above. On VBLT’s website, it saysthe study was on ovarian cancer. It’s an appropriate comparison to the ovarian cancer studies shown above.

After VB-111, VBL Therapeutics Has Nothing Left In The Pipeline

With the failure of VB-201 in February, the only drug that VBLT had left, aside from some preclinical experiments, was VB-111. With such lack of efficacy in fighting mullerian tumors, and the dangerous toxicity of the drug, it should also be considered a failure and the trials shouldn’t be continued as VBLT planned for thyroid cancer or glioblastoma. Without VB-111, VBLT really has nothing left and needs to start over from scratch.The company reported $34.4 million in cash and equivalents on March 31, 2015. The market cap should be around cash level or slightly less since the company needs to start from ground zero. However, the company will likely be doing more fruitless VB-111 trials and burning lots of cash, which will decimate the share price with stock dilution and future trial failures.

It’s a crazy market we’re in. Hot money has pushed InterCloud Services (ICLD), an IT and network solutions provider, from a close of $1.52 on April 30th, to over $4.00 today, for no fundamental reason whatsoever! In time, the share price will return to below $2 per share, because the company hasn’t improved to any degree to merit a higher share price.

Two PRs the company released have fueled this 150%+ rally. It started on May 1st, when ICLD announced that its  backlog has reached an all-time high of over $36 million.  This is not an improvement in the company’s fundamentals. It had announced on December 17th, 2014 that its backlog was over $32 million.  Another $4 million in backlog is no big deal. Backlog is not the same as future revenues. Backlog is just potential revenue, and often doesn’t ever convert to revenues.  Capstone Turbine (CPST) is a good example of a company that boasts large, increasing backlogs that has trouble converting into timely business deals.

To fuel the hype even more, the very next business day, on May 4th, ICLD announced the launching of its NFVGrid, a Network Functions Virtualization Orchestration Platform. It was well known in advance that this product would be launched. It was discussed at length in ICLD’s latest earnings call on March 20th. ICLD has already been selling its NFV to its customers. NFVGrid is an upgrade to its NFV, but isn’t a big development change.

Catalysts That Will Knock ICLD Shares Back To Earth

Time. In time, as the hot money cools off and  leaves ICLD, it will naturally revert to its correct price of below $2 per share. Nature will take its course as trading volume returns to a few hundred thousand shares per day. This shouldn’t take longer than a week or two.

Equity raise. On April 8th, ICLD filed a $100M mixed securities shelf. Now is the time for ICLD to use this shelf and issue equity with the stock’s current high volume and monster share price rally. Don’t expect the company to wait very long and let this opportunity pass.

Earnings report. ICLD will report its Q115 earnings soon. Expect it to be lousy. For the past two quarters, the more revenues ICLD receives, the lower its gross profit becomes. ICLD has huge losses every quarter. Expect this quarter to be no different, as its CEO declined to issue any form of guidance in its Q414 earnings call on March 20th.

Why ICLD Likely Won’t Be Another VLTC

We have read often in social media people saying they are buying ICLD because they think it’s the next VLTC. VLTC rose from under $2 to $21 last month. There are a few reasons why ICLD likely won’t repeat VLTC’s performance. First, VLTC was a wild card, a misunderstood company that legendary investor Carl Icahn increased his stake in. Crazy things can happen in a stock like that. Whereas ICLD is a well known IT network company that has been pumped and dumped many times before, and doesn’t have the backing of a great investor. Second, VLTC started its rally with a market cap of only about $15M, whereas ICLD had a market cap of $50M, which is harder to make rally.  Third, VLTC is a once in a year anomaly. Nobody expected it to happen, and if you expect it to happen with a stock, like people are with ICLD, then it won’t happen.

It was discovered by Reuters on March 27th that Builders FirstSource (BLDR)  was in talks to acquire ProBuild for approximately $1.5B.

– On that news, the stock only moved about 10% from the low $6s to the high $6s.

– It’s possible that major holders didn’t value the merger very highly, otherwise, they’d have bid the stock up higher before the merger happened.

– On April 13th, BLDR announced the buyout of ProBuild, for $1.63B, and the stock has almost doubled in two days.

– Could it be that the runup is overdone on expected news, or did the market think the buyout wasn’t going to happen?

Builders FirstSource (BLDR), manufactures and supplies construction products for residential home building.  On April 13th, it announced that it’s acquiring ProBuild, a building products distributor.  It’s clear there will be some big synergies from the merger, but there will also be lots of negatives that come from any acquisition.

What’s interesting is that the stock didn’t move up on the merger news until it was headline news. Major holders and those “in the know” likely knew this merger was coming. On March 27th, there was an article in Reuters saying the companies were in merger talks. Granted, it was a rumor, but BLDR had already made numerous acquisitions in 2014 so there was reason to believe the rumor was true. Yet the stock never rose over $7 per share as shown below:

This might be concerning for today’s shareholders as the stock has almost doubled since the merger announcement. The vast majority of the buyers today are uninformed investors who are just buying for the “story” and headline news. These types of investors have weak hands. Whether BLDR is overvalued or not will become apparent during and after the company’s upcoming $100M equity financing, which may be priced at far below today’s price.

– Ballard Power (BLDP) sold its fuel cell manufacturing patented technology to Volkswagen for $50 million.

– Selling assets is nothing new for Ballard as it continually depletes its cash, but it sold a core asset – its automotive fuel cell technology patents.

– Ballard has never made any money for the past 20 years.

– In a couple years, for the first time Ballard will be completely shut out of the automotive industry. All Ballard will have as customers are buses, stationary power, and forklifts, which don’t provide enough revenues for Ballard to be profitable.

– Signs indicate that BLDP will report missed earnings and/or guide down in its earnings report on 2/25/15.

Ballard Power Has Been Selling Its Assets And Technology For Years

Ballard keeps selling its assets and technology patents because it needs cash to continue and it has never been able to make a profit from its normal business.

In 2007, Ballard Power sold its automotive fuel cell business to Daimler AG and Ford. Today, it gets no business from those automotive companies or any automotive companies except for Volkswagen. Once Volkswagen’s contract expires, it will also likely part ways with Ballard, which is why it purchased the fuel cell patents.

In 2010, Ballard sold its head office building for $19.4M, and is now leasing that same property.

In 2013, Ballard sold its US Materials Products division, a non-core asset unrelated to fuel cells.

Ballard even sold its tax loss carry forward in 2011.

Why Ballard Power Will Likely Report A Lousy Quarter on February 25th

On 2/17, Ballard reported that it expects to supply 10 fuel cell modules to buses for two projects that were already awarded funding by the US Federal Transit Administration (FTA). These projects were already awarded funding and investors already expected Ballard to supply the fuel cells. There’s no reason for Ballard to announce details of this deal a week before earnings because it’s an old contract.

It’s likely the reasons why this PR was released is to soften the blow from a disappointing upcoming earnings report on 2/25/15. First, the PR says that the orders and revenues are expected in the second half of 2015. Therefore, if Ballard misses on earnings, it’s telling investors that they have revenues to look forward to later in the year.

Second, the PR was released to make investors excited and keep the share price up after the stock rallied on the Volkswagen deal news. Otherwise, why not just let investors know the details during the conference call? Ballard has confused some investors into thinking that it’s a newly awarded contract.

Today, Aeropostale (ARO) announced higher than expected earnings. But it’s not what it looks like. The following developments indicate that ARO is on its way to bankruptcy.

1. In a PR today, ARO said the forecasted earnings don’t include asset impairments. This likely includes inventory right downs. That will show up in the GAAP earnings statment.

2. Bigger decline in same store sales than expected. Aeropostale said the holiday quarter same-store sales fell 9% after a 15% decrease a year earlier. Analysts surveyed by Retail Metrics were looking for an 8.8% decline.

3. They have hired a CFO replacement, David Dick, who was the former CFO of bankrupt Delia’s, another teenage clothing retailer like ARO. This is a sign the company is getting ready for bankruptcy.

4. Once a certain style goes out of fashion, it doesn’t go back. Aeropostale will likely be the next in a line of bankrupt fashion clothing retailers.

To expand on the above points:

1. Aeropostale doesn’t predict GAAP earnings when it makes its prediction. As stated here: This earnings guidance does not include the impact of any asset impairments, real estate consulting fees, lease buyout costs, severance, other accelerated store closure costs or restructuring costs.

With those included, ARO’s earnings will be a much worse loss than the predicted loss of  ($0.06)-($0.01) per diluted share.

The biggest issue is asset impairments. For example, ARO could writedown a shirt from $10 to $3, and then sell that shirt for $9 and say that they made a $6 profit, when in reality it’s a $1 loss.

2. With a bigger than expected sales decline, that’s further evidence that ARO is NOT turning things around with making its clothes more fashionable and “cool” to wear. Especially if it’s having fire sale discounts in its stores, and people are buying their clothes to wear for when they’re painting their house or hiking in the woods.

3. Can this not be a worse omen? Why would they hire a new CFO that has experience working with retailers on the brink of bankruptcy? Expect some major cost cutting and a continual downward spiral for ARO going forward until bankruptcy.

  • Before today (1/30/15), Global Resources (GURE), a likely Chinese fraud, was trading at around half of net cash since September, 2014. Glaucus Research has reported that GURE is a fraud, and worth 0.
  • Today, GURE flew as much as 140% as it announced that it found natural gas underneath its oil well, but not how much.
  • Investors misunderstood it to read that it found 440.4 billion cubic meters, but actually that applies to a different company nearby.
  • We don’t know if there is any natural gas in GURE’s well from what’s said in the PR.
  • It even says in the PR: “Gulf does not know,” Mr. Liu added, “if this project will be commercially viable.”

– With the differences between GURE and GENE (yesterday’s high flier), expect a large fade today for GURE.

Global Resources (GURE) is a junky Chinese microcap stock that sells specialty chemicals. It might even be worth 0 according to a Glaucus Research report. It since changed its symbol from GFRE to now GURE. Evidence is pretty strong that GURE is a Chinese fraud. Looking at the historical share prices of GURE, it has been trading below $1.50 per share since September, 2014. This is a company that has net cash of $2.20 per share, and claims to make a profit every quarter. That’s a strong indication that the company is fraudulent. Legitimate companies would get bought up, at the very least by Chinese businessmen who know the company.

GURE announced a PR today, which was for the sole purpose of pumping the stock and without substance, yet in this crazy market, the stock flew to as high as a 140% gain.  The PR says there were signs of natural gas beneath its oil well. We don’t even know if there is any significant amounts of natural gas there, but GURE said that a nearby company found a large amount of natural gas. Furthermore, natural gas prices are at lows, and it’s unlikely it will be commercially viable for GURE to start a natural gas well, even if it is there. But the story is not about natural gas, or even the facts in the PR. The stock’s uptrend today is simply momentum of a microcap stock, like what happened to Genetic Technologies (GENE) yesterday, which was up over 200% at one point.

However, GURE is different from GENE, so White Diamond Research doesn’t expect this rally to last today.

The following are the differences:

– GENE’s market cap was below $8M yesterday,  GURE’s market cap is above $50M, so GENE is easier to move higher with a smaller market cap.
– Natural gas isn’t a hot sector right now, and has declined huge from its highs, like oil. Whereas with GENE, which sells breast cancer testing machines, cancer is a hot sector right now.
– In GURE’s PR, the CEO himself says he doesn’t know if the project will be commercially viable, whereas GENE plans on opening more centers.
– GURE is a Chinese company so has fraud risk, whereaas GENE is based in Australia.
– Long term investors are skeptical of GURE, because since it’s like a fraud from the historical share price and Glaucus Research’s report, the stock will likely sell off again at some point once the news goes stale.

– MD Anderson (MDA) has a lockup period of four months before it can sell its $115M of ZIOP and XON stock it received for selling them the license to its CAR-T cancer therapy, Sleeping Beauty.
– MDA’s Ex-VP of Research, Leonard Zwelling, wrote about a conflict of interest arising from the deal, in which it’s against MDA’s interest to report any negative findings of Sleeping Beauty and risk ZIOP and XON falling as a result.
– MDA’s engaging in this questionable deal likely means Sleeping Beauty will turn out to be an ineffective therapy.
– XON and ZIOP will likely do an equity raise ASAP while the hype is still fresh.

“False. It (MD Anderson) didn’t pick them (ZIOP and XON) over the others, the others are already partnered. Classic $ZIOP and $XON pump.”

– Tweeted Skeptical PhD on 1/18/15

As explained in White Diamond Research’s previous article on Intrexon (XON), XON aggressively promoted its stock at the JPM Healthcare conference on 1/14/15. XON announced that along with its partner, cancer biotech Ziopharm (ZIOP), they purchased the license of MD Anderson’s CAR-T cancer therapy called Sleeping Beauty, for a total of $100M in stock. XON wanted to get involved with the CAR-T hype and pitch it to investors at the conference so much, that it and ZIOP paid an extra $15M worth of stock, on top of the $100M, in order to expedite the deal to get it done in time for the conference.

Since then, a new revelation has come to light. MDA’s ex-VP of Research, Leonard Zwelling, blogged about how there’s a conflict of interest with the MDA deal. MDA was paid $115M, all in stock, half in ZIOP and half in XON, and MDA can’t sell its shares until four months from now. Since the cancer therapy was purchased very cheap ($115M), it’s a longshot for the therapy to be successful. Therefore, MDA will likely not do any intensive, revealing studies in the four months before its lockup period ends, because if any negative discoveries come to light about the therapy, that will make XON and ZIOP stock go down, which MDA is now heavily invested in.

From MDA’s Wikipedia page:

Being part of The University of Texas System, MD Anderson Cancer Center is managed under a nonprofit structure; however, for-profit agreements have caused some to question the motives of the center.

MDA wanted that $115M, which is a small sum for a cancer therapy. The fact that MDA is willing to risk tarnishing its reputation over this deal shows that Sleeping Beauty is likely not an effective therapy. If MDA was sitting on something of great value, it likely would have passed on this questionable deal with XON and ZIOP, and waited to do the deal with a bigger pharma company.

Now is the time for XON and ZIOP to strike with an equity raise. XON investors are now very exuberant after the JPM Healthcare Conference, and the lockup period for MDA is a long ways away. XON won’t be able to promote its stock as well as it did at the conference from now until MDA’s lockup period expiry. At this point, the longer XON and ZIOP wait to do an equity raise, the lower the price they’ll have to sell their stock. For these reasons, it’s in both companies best interest to do an equity raise ASAP.

– Intrexon (XON) licensed a cancer therapy from MD Andersen which cost them $50M in stock.

– Intrexon paid an extra $7.5M to get the deal done quickly so they could present it at the JPM Healthcare Conference and hype up the stock.

– Intrexon might have joined the cancer immunotherapy party too late.

– That’s too bad, because the company is almost out of cash and likely about to have a huge equity raise.

Connecting The Dots…Short Intrexon

“Cancer immunotherapy has been a rising market. We have more cards to turn over in the coming days and weeks.”

– Randal Kirk, Intrexon’s CEO at the JPM Healthcare Conference

With the selloff of cancer immunotherapy stocks today, what if Mr. Kirk is wrong and the MD Anderson deal was a mistake?

Intrexon (XON) is a biotechnology company that operates in the synthetic biology field. It designs, builds, and regulates gene programs. It’s one of those companies with supposedly a “breakthrough technology” that never quite gets there. It has collaborations with many different small cap biotechnology firms, which ends up being very costly for XON.

The Hail Mary Pass – Licensing A Cancer Therapy From MD Anderson That Nobody Has Shown Interest In

XON caused a huge short squeeze on 1/14/15 and gained 30%. This happened because it announced a collaboration agreement with MD Anderson to license its CAR-T Cell cancer therapy called Sleeping Beauty. Here is an intelligent, bearish analysis on the deal by EP Vantage biotech journalist Jacob Plieth. Jacob Plieth previously wrote an article on December 9th, comparing the different CAR-T therapies shown at ASH.

Sleeping Beauty showed the least amount of efficacy.

CAR -T is a hot market right now, and that might be the only reason why XON did the deal. It appears that this particular CAR-T therapy isn’t very good from Plieth’s analysis and what we’ve heard from other biotech analysts.

All XON had to pay was $50M worth of its stock, and its market cap shot up $900M. According to biotech expert Adam Feuerstein, the therapy is similar to that of Bellicum Pharma (BLCM). XON rose more on 1/14 than the entire market cap of BLCM. The collaboration was also with Intrexon’s partner, Ziopharm (ZIOP) which also paid $50M worth of stock in the deal. Ziopharm rose about 50% on 1/14/15. So both companies gained a combined $1.2 billion in market cap from just spending $100M on the license agreement for the drug. MD Anderson has a 120 day lockup period before it can sell the shares.

Ziopharm is a cancer biotech that has repeatedly disappointed investors and hasn’t had any success with its drug candidates yet.

MD Anderson has collaborations with many different big pharma companies. It knows what its research is worth. If it had a promising cancer therapy, it wouldn’t have sold it for only $100M in stock with a lockup period. As the above analysis mentions, MD Anderson’s Sleeping Beauty CAR-T studies have been presented for the past two years at ASH conferences. MD Anderson had plenty of time to offer to license it to its other collaborative partners. MD Anderson has cancer immunotherapy collaborations with Amgen, Pfizer, Bristol-Myers Squibb and GlaxoSmithKline. If they were interested, one of them would have licensed Sleeping Beauty before XON and ZIOP did.

The Pump

In order for XON and ZIOP to announce the deal at the JPM conference on 1/14 to pump up the stock, they paid MD Anderson an extra $15M in stock to rush through the process and get the deal done by then. This filing describes it. That is over 10% the price of the therapy, just in order to pump it at the JPM conference. That alone shows the amount of hype that went into this run-up, and the little value of the cancer therapy. MD Anderson has a 120 day lockup period on these shares as well.

At their JPM presentation, Randal Kirk, XON’s CEO, made many pumpish comments. This is a $3B+ company, too big to stay pumped off of promotional comments.

Some of his comments and my analysis of them:

“Cancer immunotherapy has been a rising market. We have more cards to turn over in the coming days and weeks.”

A CEO shouldn’t be saying this. Investors should figure it out on their own.

Sleeping Beauty “impressive” and highly complementary to Intrexon’s tech, creating a leading platform and capability in the industry.

If Sleeping Beauty were “impressive” then MD Anderson wouldn’t have sold it for only $100M.

“The MD Anderson deal is a wonderful alignment of the stars.”

You don’t pay $100M and have a guaranteed blockbuster cancer therapy. It doesn’t work like that, but the way Mr. Kirk talks it seems like he thinks it’s a sure bet.

High Cash Burn, Increasing Short Interest

Intrexon’s (XON) back has been against the wall. On December 15, 1.4 million more XON shares were reported to have been shorted over the previous month for an 11.26% increase in short shares. Why has the amount of short shares increased so much in one month? There could be a negative catalyst up ahead, I’m not sure.

What we do know is Intrexon has been performing badly the past couple quarters. For each of the last two quarters it had about $52M in losses. It also burned through about $40M in cash each quarter. With only $122M of cash and short term investments reported on September 30, 2014, Intrexon only has one or two more quarters to go before it needs to raise money again, and might do it sooner than you think.

 

  • Viggle’s (VGGL) business, incentivized ad viewing, is bottom of the barrel ad view quality.
  • VGGL spends more money to get users than it gets paid by advertising companies.
  • VGGL spends close to $2M per month on advertising and marketing. At this rate, they’ll need to raise more money in 1H15.
  • VGGL makes almost 100% of its revenues on mobile phones from its mobile phone app, and the app has a low download ranking.
  • The CEO has never bought common stock of VGGL, but is buying highly dilutive preferreds and debt. He is, however, buying common stock of his other company, SFX Entertainment (SFXE).
  • VGGL common stock will eventually reach zero.
  • The lower the trading volume, the lower the stock price goes.

Viggle’s (VGGL) business model of ads incented with ulterior motives makes it a sham. If somebody is only clicking on something to get “points” they very likely don’t care about the message and the impression of the ad is very low. The value of ad impression is very important, as internet ad companies are finding out. Look at what happened to the stock of Blinkx (BLNX.L). Blinkx had placed low quality ads on the internet, and eventually ad companies caught on. Harvard professor Ben Edelman wrote a scathing report on Blinkx earlier this year before it collapsed.

There is no hope for VGGL. It costs the company much more money to get users and keep them interested than the revenue it receives from ad companies. VGGL common stock will eventually be worth zero, as the CEO will take over the company with his loans and preferred stock.

Yet the company is highly promotional to investors and presents at many investor conferences so they can fund the business by dumping shares on the open market.

The CEO’s Predatory Lending

VGGL’s founder and CEO, Robert Sillerman, bought a shell (Gateway Industries) in 2011, and invested in that shell which became Function X and then Viggle. He has been pouring money into this business for awhile. He doesn’t want to let a bad idea die.

On 10/31/14, Sillerman’s company, Sillerman Investment Company III (SIC III) invested $30M of predatory lending to VGGL. With the company’s advertising and marketing spend of almost $2M per month, those funds will run out by 1H15 of next year. Much of that $30M will be used to pay off debt and short term liabilities. The PR for this lending doesn’t show the predatory terms of the deal. That is shown in the SEC filing.

Some shareholders might think Sillerman is helping them, but he’s not. If he were buying common stock on the open market, then that would buoy the stock price and help shareholders. But buying preferred stock and bonds won’t help shareholders, it only digs them a deeper hole to come out of.

In fact, the stock trended down after news of this dilutive offering on October 29th, as shown in the stock price chart below:

 

The stock rebounded over 100% after quarterly results were announced but the quarter actually wasn’t very good. The stock then cooled off a bit, but then shot back up again on announcement of another small, token financing deal with SIC III on November 28th.

What’s also interesting about the above stock price chart, is the volume bars on the bottom. Whenever there is heavy volume, the stock goes up. When volume is low, the stock goes down. There was hardly any volume prior to November 12th, and nobody cared about the stock. Now everyone cares about it. Once volume dries up again, the stock will predictably immediately fall back down to sub $3 within the next week or two, and then sub $2 in a couple months.

Viggle’s Mobile App Is Hardly Used

VGGL makes close to 100% of its revenues through mobile advertising. Its mobile app is hardly used however as shown by app analytics service App Annie. If an app is ranked below 250, it’s non-existent. As shown below, the Viggle app is ranked well below 250.

 

CEO’s Related Party Dealing

As explained in this article, the CEO, Robert Sillerman, owns a big chunk of VGGL but bought his shares for less than 10 cents apiece. The reason why he’s keeping the company afloat right now with debt funding, is partially because he is funneling some of the revenues to his other company, SFX Entertainment (SFXE). What’s interesting, is Sillerman has been buying shares on the open market of SFXE, but he has never bought shares of VGGL on the open market.

From the latest 10-Q:

“Our licensing agreement with SFX Entertainment, Inc. may adversely affect our ability to generate revenues in the future.

 

On March 10, 2014, we entered into a software license and services agreement with SFX, a company affiliated with Mr. Sillerman, pursuant to which we licensed our audio recognition software and related loyalty program to SFX. SFX may use the software for its own internal business purposes and may sublicense the software to its affiliates or to its co-promoters. The agreement provides that during the term of the agreement we may not license the software to any third party that directly competes with SFX in the promotion of dance music. Therefore, the agreement will prevent us from entering into, and generating licensing revenues from, any third parties that compete with SFX in the promotion of dance music. The agreement also provides that SFX will receive 50% of our net revenues from the license of the software to any third party. Accordingly, any future revenues that we receive from licensing the technology to third parties will be reduced.”

 

A Lousy Q3 2014

Last quarter’s reported results were lauded by the market as the stock rose over 100%. It was reported in news streams as:

“Viggle reports Q1 revenue $6.48M, one estimate $5.31M
Total reach was 26.2 million and active reach was 10.3 million in September 2014. The Viggle platform’s net registered users surpassed 7 million during the quarter, which was an increase of 112 percent and 32 percent from the same quarter of the prior year and prior quarter, respectively.”

 

But that increase in users and revenues came at a big price. For quarter ending 9/30/14, losses reached a yearly high of $17.6M, or about $1M more than the previous quarter. In quarter ending 6/30/14, revenues increased $2M quarter over quarter, but losses increased by $2.7M. The more revenues VGGL makes, the more money the company loses.

VGGL is now getting less revenues per user. Even though net users increased 112% year over year, revenues for the quarter only increased 49%.

The following are VGGL’s latest quarterly income statements taken off Yahoo finance:

Conclusion

With the need to consistently “buy” its revenues, VGGL is a business that doesn’t work. It’s apparent that the company’s CEO also feels this way, because he isn’t buying common equity in the open market, yet he’s buying stock on the open market with his other company, SFXE. This predatory lending he is doing doesn’t help shareholders, it just digs a deeper hole for them. Right now, with the hype in the markets, the stock hasn’t been punished for his predatory lending. But sooner rather than later, when volume dies down, the share price will feel its toll. Expect to see much insider selling later this month and next month by VGGL employees and major shareholders. We expect there has been a lot of insider selling during this recent trend of high volume the past couple weeks.

 


(Note: this article was published 10/7/14 on Adam Gefvert’s instablog on Seeking Alpha before here.)

Why VIMC’s Share Price Has More Than Doubled Within The Last Month

Vimicro (VIMC) is a chip maker and producer of surveillance cameras in China. Nothing material has changed today compared to September 2nd when VIMC was trading at below $4 per share. Yet it’s now trading at above $10 per share!

The tragic shooting of an unarmed black man by a police officer in Ferguson, MI has caused video surveillance to be a hot stock sector. Hype fueled some impressive run-ups in US-based video surveillance companies such as Digital Ally (NASDAQ:DGLY), Image Sensing Systems (NASDAQ:ISNS), and TASER (NASDAQ:TASR), only to have each of these stocks come back down to earth soon after the euphoria ended. Recently, the blind enthusiasm has shifted to Vimicro (VIMC). It’s strange that it is affected because it’s in China which isn’t concerned by events in Ferguson. On top of this, VIMC management has gone on an aggressive campaign to promote their stock in the US and China.

VIMC will inevitably fall back to the $4-$5 range it was trading at one month ago, as nothing new fundamentally has happened to the company since then. New sales here and there are expected, but each sale the company makes is non-recurring revenues. The company’s marketing deal with Inspur doesn’t seem to be a big deal, as there was no comment from Inspur and the news wasn’t posted on Inspur’s website.

With An Inferior Product, Vimicro Can Only Get “Forced Sales” Through Government Connections

VIMC’s cameras have performance specifications inferior to those of key competitors. Almost 100% of VIMC’s camera sales are to the Chinese government and its affiliates, because no non-government entity would care to buy them with so many better options out there. VIMC’s Chairman and CEO has ties to the government and uses his influence there to help sell its cameras to two provinces. VIMC will inevitably experience declining revenues as it’s directly competing with China’s biggest surveillance camera maker, Hikvision. For example, Hikvision reported a major sale in Guangdong province, which is supposed to be VIMC’s territory.

Earlier this year, Guangdong Province was selected by the Ministry of Public Security as the first demonstration of the National SVAC (Surveillance Video and Audio Coding) standard. A standard that VIMC co-created with the Ministry of Public Security. However, businesses in Guangdong are ignoring this standard, and going with superior camera makers like Hikvision.

In fact, Hikvision just signed a strategic partnership with Alibaba (NYSE:BABA) on 9/30. The two companies will together build China’s largest security camera cloud for family, personal, and city use. Such partnership is a validation that the current H.264 based camera is still the mainstream, and will continue to be. VIMC’s “first mover advantage” on SVAC is no more than its relationship with a couple provinces.

Vimicro’s History Of Poor Execution

VIMC started out as the first Chinese chip company on the NASDAQ in 2005. They were selling chips for webcams embedded on laptops. Their execution was poor compared to their competitors, and now it’s a declining business for them. Starting in 2010, they shifted their focus to manufacturing and selling surveillance cameras and chips because their other business failed, and now are using government support to prevent failure with their surveillance cameras as well.

Here is an interesting Seeking Alpha article about VIMC published in May, 2012, to see how the company was perceived back then. From the article:

“VIMC has been hit hard as of late, with shares falling more than 14%+ in the most recent trading day, as shares have fallen to $0.78. When it comes down to it, VIMC are the leading chipmakers for PC webcams and have achieved great success for their design of multimedia chips for mobile phones. The company has been rapidly expanding; recently, they have even created a unit focusing on surveillance-camera chips.”

Now VIMC’s business is almost solely surveillance cameras, the other product lines are almost finished.

The following chart shows VIMC’s declining revenues and negative operating income over the years.

(click to enlarge)

Vimicro’s Revenues Are Miniscule Compared To Other Chinese Surveillance Camera Players

VIMC isn’t a leading or advanced surveillance camera maker. The following are VIMC’s major, pure play competitors that sell video surveillance products only in China:

In addition to the above list, there are other pure play competitors that are mentioned in VIMC’s latest annual report. These competitors, led by Hikvision and Dahua, are 2x-50x bigger than Vimicro in market cap. These firms all make and sell the H.264 video coding standard, which is the most common standard worldwide.

The exchange rate is about 6 RMB per US dollar. In US dollars, Hikvision, the largest on the list, has a $12.5B market cap, and OB Telecom, the smallest, has a $477M market cap. VIMC only has about a $250M currently, and had a $125M market cap just one month ago. The following shows Hikvision and Dahua’s expected revenues compared to VIMC’s:

The above 2015 revenues for VIMC are street estimates, by only two analysts that follow VIMC, and are unlikely to be achieved.

It’s clear from the size of VIMC’s pure play competitors that surveillance cameras are a big business in China. Then why is VIMC so much smaller? The answer is that its cameras have inferior technology to its competition.

Vimicro’s Inferior Technology

VIMC’s chip design capability is way behind some of the bigger players. VIMC’s highest spec’d camera uses 2.1MP sensor which maxes out at 1920×1080. It’s bulky and old-fashioned looking. In comparison, Hikvision and Dahua offer 5MP sensors with a better design. If you had a business in need of an efficient surveillance system, would you rather buy cameras that look like this:

Or that look like these:

(click to enlarge)

The SVAC “Standard” Has Not Caught On In China, And Likely Never Will

It has been over three years since there have been talk about the “new” SVAC standard, as announced by VIMC in January, 2011. Yet it still hasn’t been widely adopted in China and there’s no reason to suggest that it will be. SVAC is a failed attempt by VIMC to compete with H.264. This vain battle was fought in 2011, and SVAC was left orphaned, with only the CEO’s government friends buying a few systems, which will soon be obsolete.

Hikvision and Dahua have achieved absolute dominance in China despite VIMC’s claim to the SVAC standard. The reality is, H.264 video is overwhelmingly dominant not just in China but across the world, by not only video system buyers but also by producers of chips and system. The big players in the industry like Hikvision have found ways to add proprietary encryption and control to provide the necessary security.

Guangdong province was selected by the Ministry of Public Security for a first demonstration of the SVAC standard earlier this year. Except just last month, Hikvision deployed its video cloud storage unit at Shaoguan Iron & Steel, a major China steel company based in Guangdong Province. Shaoguan is a state-owned enterprise, so this rules out the idea that the SVAC standard will be required in Guangdong.

Regarding VIMC’s traction in Guangdong Province. VIMC released a PR on April, 2014, which states:

“To-date, SVAC has been implemented in Shanxi and Hebei provinces and in other regions to provide public security, urban management, and in other large-scale industrial applications. Recently, the Ministry of Public Security selected Guangdong Province as the first province for a national SVAC standard demonstration running through October 2014”

It’s a matter of trying out the standard in small cities and then leading up to bigger cities. It’s a slow process, dealing with the government, and the SVAC standard will likely never take off. If a building is using the old form of surveillance standard, they aren’t going to rip it out in order to put in SVAC.

This article on China.org.cn from 2012, put the spotlight on SVAC like what’s happening now. The article mentions Panasonic and Canon, also competitors of VIMC as they sell surveillance cameras, but they of course aren’t pure plays like the other competitors I mentioned.

It says:

Canon and Panasonic said they are aware of the new SVAC standard but do not have products that have been set up in accordance with it. The two companies are working to supply equipment for the Safety City project and will consider using the standard if a strong demand arises for products that operate on it, Canon and Panasonic said.

If this standard was something that was going to take off, then all these huge camera makers would be investing in it and taking their slice of the pie. So far, that hasn’t happened.

China has tried in the past to create its own proprietary standard, but has always failed. A prime example of this is its WLAN Authentication and Privacy Infrastructure (WAPI), explained here. WAPI is a Chinese National Standard for Wireless LANs Although it was allegedly designed to operate on top of WiFi, compatibility with the security protocol used is in dispute. Due to the limited access of the standard (only eleven Chinese companies had access), it was the focus of a US-China trade dispute. Following this it was submitted to, and rejected by the International Organization for Standardization (ISO). It was resubmitted to ISO in 2010, but was cancelled as a project in 21 Nov 2011 after being withdrawn by China. Part of the reason for withdrawal is thought to be that WAPI only applied to a small number of systems.

General Atlantic’s Liquidation Of Its VIMC Position

Looking on sec.gov, the only fund who has filed an SC 13D filing on VIMC has been General Atlantic. It was an owner of VIMC since 2005 when it first came on the NASDAQ. General Atlantic owned 16.7% of the outstanding shares. The filings show that General Atlantic sold a bunch of shares in early 2013, and sold its remaining shares to the company for $1.97 per ADS on 12/18/2013. $1.97 is less than a fourth of what the stock is trading for now.

This was less than a year ago that General Atlantic liquidated its position in VIMC. General Atlantic is a very large and savvy Global Equity fund with $17B of assets under management. They are effectively the “smartest guys in the room”. If VIMC was onto something cutting edge and successful with their SVAC, General Atlantic would not have liquidated their position last year, after being major shareholders for 8 years. General Atlantic does deep due diligence, and has offices in Hong Kong and China. It knows full well what kind of business VIMC has, and what hope it has for the future.

Vimicro’s Government Sales Are Not Reliable

Almost 100% of VIMC’s revenues are to the Chinese government. These are non-recurring revenues, and are dependent on continued dealings with government officials. As written in VIMC’s latest annual report:

“Most of our revenues are derived from the installation of video surveillance systems which are generally non-recurring. Our customers are primarily governmental entities and their affiliates such as cities, municipalities and provinces, non-profit organizations and commercial entities, such as airports, customs agencies, banks and theaters.”

A private company would not buy from VIMC unless it is required due to an affiliation with the government. VIMC gets sales by dealing with government officials who require that its affiliates use these cameras despite the lower quality than its competitors. Take a look at VIMC’s Chinese language website. On the homepage, its primary photo is its CEO, Dr. Zhonghan Deng, shaking hands with China’s president.

(click to enlarge)

Compare this with the home pages of Hikvision and Dahua, where the primary pictures are of its cameras.

That is the way VIMC sells its cameras. Not from promoting, improving or trying to find a niche for its products, but from having connections with Chinese officials. VIMC is trying to “fight gravity”. With inferior cameras, the only sales the company makes are those forced through by the government. If an establishment had its own choice, it wouldn’t choose to purchase VIMC’s cameras. If VIMC loses favor with the government and its affiliates, then its sales could drastically decline.

China’s Recent Anti-Corruption Campaign Could Stifle Vimicro’s Sales

China’s large scale current anti-corruption probe has a big impact to government-related businesses. This could hurt VIMC since it is exclusively dealing with Chinese government and selling due to connections rather than technical merit. It could delay orders or even completely cancel them. Regarding this widespread campaign, note the bold print from the following earnings calls from companies with business in China:

  • 2014/07/22 Waters Corp (NYSE:WAT) earnings call:
    • Question – Ross J. Muken: Good morning, guys. I wanted to dig in a little bit more again just on sort of China and the rest of Asia. It seems like developing markets getting better across the portfolio. Usually that would sort of be feeding off of at least as we think the Asia off of China, I guess in terms of the sort of weakness there, particularly on the government end, are we still seeing some of the delays just in terms of budget approvals on high-end CapEx, say, over $50,000 type items where it’s really the sign off process that is just taking time given some of the anti-corruption probe sort of concerns.
    • Answer – Douglas A. Berthiaume:We think the issues that existed is related to a crackdown on corruption, was a general dynamic that affected a lot of business in China, wasn’t necessarily focused on the lab and analytical marketplace and to that extent …
  • 2014/07/29 Waddell & Reed (NYSE:WDR) earnings call
    • Also, during that period of time, our exposure to the gaming sector, specifically, Macau gaming, which is a significant part of the portfolio and continues to be, was negatively impacted by sentiment as it surrounded the outlook for Hong Kong traded securities in general in that sector, in particular on the back of the, on the back of investors’ concerns about the extent and depth of the anti-corruption campaign that is currently being engaged in by the current leadership of China.
  • 2014/9/4 Dominion Diamond Corp (NYSE:DDC) earnings call
    • In China, there’s a weakness in the sales of diamond jewelry at the top-end as a result of the continued anti-corruption drive, which has been reflected in the full in jewelry sales in Hong Kong.

Management Stock Promotion

VIMC management went on an aggressive investor road show in China. It’s also promoting itself in the US. Its head cheerleader, Needham, which is accompanying VIMC on its road show, raised its price target from $6 to $8 on September 8th. The stock was trading for below $4 per share as recent as September 3rd. When it rose above $8, the Needham analyst was asked if he would raise his target, but he had no comment at the time.

Per its 20-F filing, VIMC management has 2.3 million in the money options expiring on October 14, 2014. This is about 2% of the total shares outstanding. The desire for management to exercise these options at a high price is likely the primary motivation for its current stock promotion.

(click to enlarge)

Management has been aggressively exercising their options and selling shares since their promotion at the beginning of September as shown here. They are using Form-144 so they don’t have to file on sec.gov. It’s a tricky way to report insider sales.

(click to enlarge)

Taken from Bloomberg, the above are the insider sales since September. Insiders started selling aggressively starting at $4 per share.

You Should Sell VIMC Like Management Is Doing

VIMC has had an unprecedented runup in share value, up 500% since the beginning of the year off the surveillance sector hype. While the sector is strong in China, it’s the H.264 video coding that is in demand, not Vimicro’s SVAC video coding. Government influence can only go so far in convincing companies to buy an inferior product, even in China. With its non-recurring revenues, shareholders are risking a lot expecting SVAC to become readily adopted in the future. It’s clear that VIMC’s management has no confidence of its future success, or they wouldn’t be selling as many shares as they have. Investors would be wise to follow suit and sell VIMC shares as well.

In fact, as shown below, management has been fleecing shareholders for years, with compensations equaling over 6% of VIMC’s market cap.

There are a group of investors that look to capture dividends of high yield stocks. However, what they fail to realize sometimes is that trusts that terminate in the near future can be very overvalued. Investors can lose much more in share price depreciation than they receive with the dividend. This is the case with Great Northern Iron Ore (GNI). It’s a royalty trust that has its final dividend payout in March 2015 before it closes.

The details about GNI can be found in Seeking Alpha articles here and here. The situation is actually very simple, and it was confirmed to me by GNI’s CFO. At any point from now until March, the share price can collapse. Dividend chasers are playing Russian Roulette with their money.

I spoke with Thomas Janochoski, the VP and CFO of GNI, last week. He’s very friendly and is the one who answers the phone at this number: (651) 224-2385, which can be found here. He confirmed to me that the company doesn’t expect the remaining three quarterly dividends to be more than last year’s dividends, or averaging $2.50 apiece. So far this year, the company is on track to match historical 2013 dividends. Both the March 2013 and 2014 dividends were $2.25, and both the June 2013 and June 2014 dividends were $2.50.

He also said that the company’s expected liquidation payout, to be paid at the end of 2016, if anything will belower than the company’s estimated amount of $9.72, since there will be a lot of “wind down” fees. So, at best, shareholders can expect to receive a total payout of: $2.6 + $2.65 + $2.25 + $9.72 = $17.22.

An additional advantage for short-sellers, is the end of 2016 is more than a year and a half after the final dividend. Most GNI longs won’t want to tie up their money for that long, and will sell their shares before the stock disappears in April 2015.

The Upcoming Catalyst

GNI’s share price has plummeted significantly more than its dividend on the ex-dividend date for the past four quarters. Therefore, the catalyst to a short position is to short the stock now, and wait till the ex-dividend date of around September 26th. If the stock falls right before ex-dividend, like it did last quarter, then you can cover before the ex-div date. Or you can just hold the short through the ex-dividend date. You’ll have to pay the dividend of $2.60, but the stock should fall $6 or more. The following chart tells the story for the last two quarterly dividends:

(click to enlarge)

As shown in the above chart, the stock rose to around $24-$25 right before the ex-dividends in the last two quarters, and then plummeted to around $18 or below each time. It’s already at above $24 again. However, people should realize that after every ex-dividend date for GNI, the stock is worth less and less. The dividends paid out is money that the company will not earn back. Therefore, after this next dividend, fear should start to grip investors more, and the stock will likely fall below $18, and perhaps even below $16.

The pattern before the previous two dividends is the stock went as high as $24. But this will change going forward. There’s no way it will be trading for $24 right before the final dividend in March. None of us truly know when the trust will collapse to its true value (of below $15 after the September dividend), but it’s a certainty that it will happen within the next six months.