iMing Corp (OTCPK:IMNG) has roughly doubled in share price this month so far, rising from $0.58 per share to as high as $1.18 today. With such a sharp rise only six trading days into the month of December, it's natural to be tempted to buy some shares and join the momentum. But a further look into IMNG.PK's filings warrants caution as its dilution appears to be excessive, leaving a market cap much higher than many investors probably realize, along with financials that don't seem to justify such a lofty valuation. Caution is advised before considering buying shares of IMNG.PK.
According to its website, iMing Corp. is:
...a provider of high-definition web based television and video's for the Chinese Market with the goal of being a leading provider of set-top boxes in Asia and expanding into North America and Europe. Within China there is a combination of several economic revolations [sic], the urban expansion of internet users and ecommerce, and the increase in wages and income per annum. iMing's strategy is to distribute and sell their WebTV boxes through a trillion dollar retail market, a multimillion-dollar internet audience, while using low-cost local manufacturing and logistics.
Run. Don't walk. IMNG.PK had a reverse split of 1 for 500 shares in June. The dilution has been so bad since then that I had to check, double check, triple check, and then check again because when I looked at the latest amount of shares outstanding the count had gotten so high that I couldn't believe it and thought maybe there was an error in the filings by IMNG.PK. I thought that perhaps it was still using pre-reverse-split numbers.
Nope. It's not an error. On a split-adjusted basis, using IMNG.PK's filings, the share count as of Dec. 31, 2011, was 210,955. By June 30, 2012, it was up to 17,193,187 after issuing 16,882,232 shares "in conversion of Debentures" -- that's 7,900% dilution. And it doesn't end there. According to their next quarterly filing, there were 104,800,987 shares as of Sept. 30, 2012, or an additional 521% dilution in Q3 alone for a running total of 49,579% dilution in nine months.
Is that a record? Where did these shares come from? Well, according to the same filing:
During the third quarter of 2012, the company retired $174,810 of principal and accrued interest held by five Debenture holders for 18,857,800 common shares.
On Aug. 15, 2012, the company issued 68,750,000 common shares to its president for $100,000 of cash into common shares.
Line one above: Those five Debenture holders converted their debt owed them at $0.01/share for IMNG.PK stock trading well north over $1.00 per share. What a deal! Those debenture holders have become mega-millionaires. Unfortunately, this is at the expense of shareholders, in a move called death spiral financing.
Line two above: Even worse terms at $100,000 for 68,750,000 shares comes out to less than $0.0015 per share. Not a bad deal for a stock that at the time was listed at $0.25 to $4.00 and is currently trading over $1.00 as I write this.
The good news is there has been no additional dilution reported from Sept. 30 to Dec. 4. The bad news is with a well over $100 million market cap and new-found mega-millionaires holding the stock from making tiny debt investments and are now up thousands of percent, the stock could crash bad will likely be extremely ugly. It would be nearly impossible to defend such a lofty valuation considering their operational results from the most recent quarter:
The company's third-quarter business during 2012 was significantly less that the third quarter of 2011 resulting in a third-quarter loss in 2012 of $21,660 compared to the third-quarter profit of $62,388 during 2011.
Operating expenses during the third quarter of 2012 exceeded its gross revenues by 19%, whereas third-quarter operating expenses during 2011 were only 33% of its gross revenues.
With IMNG.PK continuing to rack up losses and burn cash, additional financing of the death-spiral-type may be in the cards. Their balance sheet last showed almost no cash and negative shareholder equity. This doesn't sound like a $100 million-plus market cap company prepared (and capitalized) to enter the "9 Billion Dollar Set-Top-Box/Web TV Market In China" as one of its latest press releases claims. Caution is advised.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.