(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
As of last Friday's closing price of $0.379 per share, Xumanii (OTCQB:XUII) has a market capitalization of $129 million. The stock had not traded prior to being promoted by websites of Victory Mark Corp. on May 1st. The only reason that the stock has traded so much volume and has achieved this valuation (despite having under $81,000 in total assets) is because of the massive stock promotion campaign. The stock promoters who are behind the promotion have outdone themselves in their absurd assertions about how wonderful Xumanii is, so I felt the need to correct them and warn traders away from this company. In this article I will examine in depth the stock promoters behind the promotion of Xumanii, a lawsuit filed against the company and its promoters, and finally the company's fundamentals. Everything I see leads me to believe that Xumanii stock will drop over 70% in the next couple weeks.
As stated above, Xumanii was first promoted by Victory Mark Corp on May 1st. Victory Mark Corp Limited. Victory Mark Corp, as usual, disclosed $500,000 compensation to promoted Xumanii. Victory Mark Corp has three websites:
To see how past Victory Mark Corp pumps have fared, I suggest taking a look at the Promobuyer website, which tracks stock promotions. Their promotions only tend to last for a couple weeks, although a few have lasted over a month and a couple have only lasted a day.
After large volume and a big price spike the first day of the Xumanii stock promotion, the stock quickly dropped retraced most of its gains and then went sideways on decreasing volume. On May 13th the stock was promoted by AwesomePennyStocks.com (APS) and its related promotion websites, causing the stock to break out above its previous highs and trade insane volume of over 180 million shares that day. How APS pumps work has been written about at length in a prior SeekingAlpha article by Infitialis.
Let us take a brief detour to look at APS and the websites that they run. They currently control / use the following websites:
APS used to use a lot more websites, though. I have a list of their websites on my trading blog from July 2012. Around the same time, their promotion emails on Great Wall Builders (OTCPK:GWBU) ended up in the spam-trap of an anti-spam blogger. This led to iContact, APS' email service provider, dropping them as a customer, and led to SpamHaus briefly adding AwesomePennyStocks.com to their domain block list. This caused many of APS' emails to get caught by various ISPs' spam filters and it likely led to the premature end to their promotion of Great Wall Builders. Since then Great Wall Builders' stock has fallen from over $1.00 to $0.01. I believe that APS stopped using most of its websites due to this spam problem. For a stock promoter that values their email list in excess of $1 million (as stated in a legal complaint against another stock promoter they alleged a year ago to have stolen their email list, see line 30 of the complaint PDF), getting blacklisted as a spammer is a very big deal. Since that time, APS has changed email service providers multiple times.
APS disclosed in its emails that it was owned by Centro Azteca SA, based in Belize, starting in November 2011. However, at the same time the websites purported to be owned by a Canadian corporation, Marketing Integrale, and that was the legal entity that sued other stock promoters who allegedly stole their email list.. The most recent time that an APS email disclosed that it was owned by Centro Azteca SA was in February 2012 when it promoted America West Resources (AWSRQ.pk). Interestingly, John Thomas Financial was sued by FINRA for its involvement in promoting America West Resources; APS was mentioned in the complaint (pdf). I do not know if there is any relationship between John Thomas and APS besides the fact that they both promoted America West.
There have been a few changes to those disclaimers since February 2012 but for our purposes I will skip forward to the present, where most of the APS websites disclose ownership by Degroupa Tenner Morales Media Corp, based in Costa Rica.
The pay website of these stock promoters (PremiumStockReport.com) discloses different ownership (disclosing a location in China but not actually disclosing what legal entity owns it):
Now the question you may have is why any of this matters. First, it matters because any business that is offshore (particularly located in a tax or secrecy haven) or that changes legal structure or names multiple times invites suspicion. But I figure that anyone reading this article already knows to be suspicious of stock promoters -- their job is to trick people into buying worthless stock. Second, it is important to understand the multiple companies that purportedly run APS because they appear in a lawsuit filed on May 14th against those stock promotion companies as well as Xumanii and other companies they have promoted in the past.
Negative publicity from lawsuit
On May 14th, litigious penny stock crusader George Sharp filed a lawsuit against Xumanii, multiple APS legal entities including Centro Azteca SA and Degroupa Tenner Morales Media Corp, and Victory Mark Corp, as well as several other companies that had previously been promoted by APS and Victory Mark Corp (see the complaint). Sharp primarily alleged that he was spammed. He issued a press release about his lawsuit, and that PR appeared to trigger a steep drop in Xumanii's share price from $0.40 to $0.24 before the stock bounced back somewhat to close at $0.312 that day. Here is an excerpt from his press release:
SAN DIEGO, May 14, 2013 (GLOBE NEWSWIRE) -- Private citizen, George Sharp, has named the publishers of a number of well-followed penny stock newsletters, as well as the companies they promote as defendants in a new civil action for violations of California Business and Professions Codes 17529.5 (Anti-Spam). The complaint alleges that the defendants engaged, and continue to engage, in a scheme to disseminate spam emails in order to artificially create a marketplace for the stocks of worthless companies at artificially high prices. The Complaint was filed by George Sharp in the San Diego County Division of California Superior Court (Case No. 37-2013-00048310-CU-MC-CTL) on May 13, 2013.
Named as defendants in the case are: Degroupa Tenner Morales Media Corp. and Centro Azteca S.A., the current and former publishers of the Awesome Penny Stocks series of newsletters; and, Victory Mark Corp Ltd., the publisher of newsletters Select Penny Stocks, Preferred Penny Stocks and Penny Stock Heroes.
APS' troubles with being accused of spam last summer certainly bode well for Sharp. But I am not a lawyer so I really do not have much insight into whether Sharp can win. But he has made a habit of filing lawsuits against spammers and pump and dumps and he has sometimes won and sometimes settled. One important thing to note is that back in May 2011 Sharp sued Writer's Film Group, a former APS pump, along with company insiders and shareholders. See his initial complaint (PDF). He later settled that suit.
Since he filed his initial complaint and press release, Sharp has issued three more press releases about his suit, on May 15th, May 19th, and May 28th. He has also put up a website denigrating APS at AwesomePennyScams.com (he has done similar things with prior lawsuits).
It certainly appears that Sharp is in this for the long haul. Keep in mind that to wreck the Xumanii pump and dump he doesn't even have to win his suit. All he has to do is generate enough negative publicity to convince investors that Xumanii is worthless (which I wholeheartedly agree with) and scare traders away from buying the stock.
Perhaps even worse for the price of Xumanii stock is the company's reaction to Sharp's lawsuit. On May 20th, Xumanii issued a press release that linked to a page on their website where they detailed how they would respond:
CARSON CITY, Nev., May 20, 2013 /PRNewswire/ -- Xumanii™ ("Xumanii" or the "Company") (OTCQB and Pinksheets: XUII), a company that has developed proprietary technology capable of broadcasting live events in HD wirelessly from multiple cameras at events for an extremely low production cost announces a corporate update and responds to allegations by George Sharp.
To read details of the actions taken by the company thus far please visit Xumanii.com or click on the following link (CORPORATE UPDATE) to be brought to the story.
The page on their website states the following:
On May 20th 2013 the CEO and largest shareholder of Xumanii Inc Alexandre Frigon announced the retention of the LKP Global Law LLP ("LKP Global") in connection with a proposed class action lawsuit (the "Class Action") to be imminently filed against Mr George Sharp. This action being taken due to what the company feels is an unwarranted attack and intentional negative PR campaign created by Mr Sharp with the intent of damaging the image of Xumanii.
All shareholders of Xumanii stock as well as any other parties interested in joining the Class Action should contact LKP Global LLP directly as set forth below:
Luan K Phan
The proposed class action lawsuit is expected to be filed this week. Additional updates will be provided as events occur.
A fellow trader contacted Mr. Phan and asked to be informed of the lawsuit; he shared a draft version of the suit with me. Again, while I am not a lawyer or any sort of legal expert, I quickly concluded that there is little chance they would prevail if they ever file that suit against Sharp. Sharp evidently agrees with me and he put out a press release on May 27th responding to the suit. Here is an excerpt:
According to Mr. Sharp, LKP attempted previous litigation against him on behalf of another its clients, Forex International Trading Corp. That litigation was immediately abandoned after Mr. Sharp filed a Motion to Strike the Complaint under California Civil Code of Procedure # 426.15, commonly known as the anti-SLAPP (Strategic Lawsuit Against Public Participation) statute, designed to protect the First Amendment rights of those seeking litigation privilege. "SLAPP" suits are commonly used to attempt to get righteous litigants like Mr. Sharp to abandon their right to free speech and their litigation. Those found in violation of the anti-SLAPP statute are required to pay the attorney's fees of the defendant, as was the case of LKP's client Forex International. Mr. Sharp strongly feels that the proposed case, if actually filed, will end up in a similar result, "This is obviously just another attempt by some nefarious characters to try and get me to be quiet," he stated.
If Alexandre Frigon does not go through and file the counter-suit against Sharp it will certainly look bad for Xumanii and likely convince many people that Sharp's allegations are correct.
Stock Promoter Lies
Now we return to the original impetus for this article, the lies told by the stock promoters. It is normal for stock promoters to exaggerate and mislead during the normal course of business: their job is to get naive investors to buy worthless stock. But rarely are their statements as blatantly false as they have been with Xumanii.
According to the emails from APS on May 25th, Barclays is buying shares in XUII. Barclays is of course a large international investment bank. Here is an excerpt from that email (see screenshot):
XUII rose over 18% yesterday erasing almost completely the drop it had on Thursday. We mentioned many times in the past that any dips on XUII is a great opportunity to buy and yesterday was another clear example that great gains are happening with this pick.
In fact, it looks like a fund owned by Barclays is starting to buy shares in XUII while the company is still undervalued.
Based on 2 recent edgar fillings, we believe a fund owned by Barclays is loading up on XUII. More details are available in the documents below:
Definitive Material Filed by Investment Companies document click HERE
Barclay's Long Enhanced MSCI Emergin Markets Index ETN document click HERE
This type of buying from a renowned institution like Barclays clearly shows that the 'smart money' sees tremendous value and upside in Xumanii Inc.
We expect other institutions to follow suit and to start buying large amount of shares in XUII as well. This is a clear indicator that the sentiment on XUII is very bullish.
Those links take the reader to pages on InvestorsHub that show SEC filings by a Barclays mutual fund and an unrelated Barclays ETF. For some reason those filings appear on the page for news/filings regarding XUII. However, that is just a software glitch -- if you look at Xumanii's filings on EDGAR you won't find those filings. Furthermore, those forms aren't even the type of form that a fund would use to disclose purchases of a stock. They are completely irrelevant adjustments to basic fund disclosures. The first filing just makes a minor edit to the statement of additional information of the First Trust Short Duration High Income Fund. The second filing is a type of prospectus for the iPath Long Enhanced MSCI Emerging Markets Index ETN (EMLB).
Two days later and May 27th brought another blatant lie in the promoter's email (see email screenshot):
A reported 80M.+ in short volume by otcshortreport.com suggest that millions of share could be on the brink of being covered by short sellers. In fact, the quick surge that we saw on Friday (+18%) suggest that many more days of short covering are ahead for investors in XUII. LOTE literally jumped tenfold within weeks on a short squeeze and XUII is about to follow the same pattern in our opinion.
The data from OTCShortReport.com and other similar websites come from FINRA, which reports the data daily (see the Friday OTC data here). Unfortunately FINRA has never issued a definitive statement on their website debunking the claims that their short trade data refer to new speculative shorts. Stock promoters and their enablers use this data to try to show that stocks are massively shorted. But if you look at the data yourself you will see that there is huge short volume in almost every stock.
However, this data does not mean that there was massive short selling of Xumanii stock or any other stock. The data are only of use to market makers and brokers balancing their books -- if a market maker sells a large block of shares for a client they will typically sell the shares short and then after the order has been filled they take delivery of the client's shares. So this is counted as a short sale even though it really is not what a trader would think of as a short sale. To find the net short interest in an OTCBB stock (the total number of shares short) instead go here -- that data is updated twice monthly. The most recent data are for May 15th, when 485,650 shares were short. Xumanii stock has not gone up much since then so I doubt the short interest is much higher. In other words, short interest is minuscule and this is one more blatant lie from the stock promoters who are trying to sell you Xumanii stock.
As is usual with companies that are the subject of big stock promotions, the fundamentals of Xumanii are mostly non-existent. See the company's SEC filings. As of the most recent quarterly report, filed on March 19th, Xumanii had total current assets of $22,076 (about what I have in my checking account) and total equipment valued at $58,770. They had total liabilities of $975,525, leaving Xumanii with a negative book value. Revenues were nil.
Further analysis of their financials would be superfluous. But even a company with poor financials can be a good investment if it has a great product that will soon be a hot seller. Well, their technology wasn't good enough to keep operating correctly when it rained, reducing the capacity of their satellite feed from Akon's new nightclub opening in the Dominican Republic. Here is the press release about that glitch:
CARSON CITY Nev., May 26, 2013 /PRNewswire/ -- Xumanii™ ("Xumanii" or the "Company") (OTCQB:XUII), (OTC Pink: XUII), a company that has developed proprietary technology capable of broadcasting live events in HD wirelessly from multiple cameras at events for an extremely low production cost announces that it must postpone the scheduled Live Broadcast in True HD featuring Akon. The performance by the multi Platinum award-winning artist was to inaugurate his new club "Jewel" at the Melia Caribe Tropical Hotel and Resort in Punta Cana, Dominican Republic. The broadcast of Akon's performance has been disrupted due to weather patterns that are negatively affecting the satellite uplink.
"We are going to broadcast this event Sunday the 26th at 11:59pm EDT. Unfortunately due to the lack of high bandwidth Internet on the island and the weather patterns that have impacted our backup satellite feed we are being forced to reschedule the event at this time," said Alex Frigon, founder and CEO of Xumanii. He continued to say, "Even though our system is working perfectly we still have to rely on a proper high bandwidth Internet connection to bring events Live in True HD."
The company regrets that it has to reschedule this event but it remains committed to bringing viewers only top quality Live in True HD feeds.
Okay, so they had a technical glitch. But maybe their product works great otherwise? Well there is no way for me to see, because they do not say anything on their website about how much it costs to broadcast using their technology. In fact, their website seems more geared towards selling stock than selling a product. See their website's navigation bar:
Try looking around their website, Xumanii.com, yourself. However, if you were looking to live stream HD-quality video for a reasonable price with little hassle, it is easy to sign up at Livestream.com and Livestream has an award-winning box that will connect to your video camera or multi-camera mixer and connect to the web over ethernet, wifi, or cellular phone connections. While I have not done anything complicated with Livestream, I have streamed video from a webcam and run screencasts of my monitor, both viewed live by scores of people. I find that the software is easy to use and I have had few problems over the last two years. Tim Sykes, with whom I work, has had live webinars streamed to hundreds of people from Livestream's studio in New York and he has also used his webcam and computer to stream to hundreds, all without problem (as long as his internet connection was good).
Livestream is hardly alone: it competes with Streambox, Veetle, TikiLive, and many other companies (those were just a few that topped the Google search results for "live stream HD video"). The logical conclusion that I cannot help but draw is that Xumanii's video-streaming service is not unique.
As is common with APS and Victory Mark Corp pumps, Xumanii stock did not trade much prior to the start of the stock promotion. This means that all the shares being bought by traders and investors is coming from company insiders or at least large shareholders in the company. Promotion Stock Secrets published a great report about how the company got to where it is now and how many shares are available to be sold to the public (see also their follow-up report that covers many details that I did not describe in this article). Rather than repeat everything they wrote about the company, I will simply quote their conclusion:
Xumanii doesn't look like they will have any chance of ever turning their website into a successful revenue making venture. With 148,800,300 free trading shares all issued at well below $.001 / share and a convertible debt Note owned by an anonymous foreign entity, it seems obvious to me that XUII is just an ugly insider enrichment scheme ...
Many people naively believe that the purpose of a pump and dump is to move the stock price up so that whomever paid for the pump can sell for a profit. In many (perhaps most) pump and dumps, however, the people who paid for the pump got shares for far below the market price through convertible debt or seed shares and they make great profits even if the stock price drops 90%.
With APS and Victory Mark Corp it is never possible to know for sure when the stock promotion will end and when the stock will drop big. The big drop almost always comes a few days before they end the promotion. A couple signs that tell me that the promotion of Xumanii may be near an end are that the promotional emails have become more and more absurd and the trading volume has continued to fade. Will Xumanii stock go up or down in the next few days? I do not know. But I think it likely that it will drop within a week and it is nearly certain that it will be under $0.10 by the end of June.
What happened to the last APS and Victory Mark Corp pump? Take a look at GOFF Corp (GOFFE.ob). Soon enough the chart of Xumanii should look much the same.
Additional disclosure: While I and George Sharp have emailed each other a couple times in the past I have no ongoing personal or business relationship with him and I am not aware of what he intends to do in the future regarding Xumanii. The webinars I give using Livestream are done under contract with Tim Sykes and he is a customer of Livestream.