The biotech industry is one of the most risky segments you'll want to bet on. However, occasionally the industry does pay handsomely when things go right. In my opinion, I like to categorize it just below gambling, in terms of risk. The level of investment in research more often burdens the companies with high levels of debt, with the hope of a successful drug in the market at the end of it all.
This level of risk even escalates further when the company in question happens to be a small cap stock, a company whose revenues continue to decline massively, or even, report no profits at all. Such is the case of little known Nuvilex (NVLX.PK), a medicinal chemicals and botanical products company based in Nevada, which is up about 360% YTD.
Nuvilex was formally known as eFoodSafety.com before changing its name in 2009. The company was founded in 1996 and is headquartered in Silver Spring, Maryland. Nuvilex's main business is centered on biotechnology products, with a focus on human health. The company manufactures a handful of products which focus on the wellbeing of the human beings, including virus cleaning substances, immunity system boosters, as well as cosmetology products.
Some of the products include:Cinnechol, a natural supplement, which helps in maintaining normal cholesterol levels and supports normal cardiovascular function and I-Boost Immune Bar, a nutritional bar that protects, stimulates, and boosts the immune system, as well as infinitink, a permanent, yet removable tattoo ink, among others.
Nuvilex's current rally is a trap
Nuvilex is up, 360% YTD, and there are people out there suggesting that the company is set to break out, which could be possibly a stock promotion scam. It is unimaginable that the company could continue with its rally, especially given that there is nothing positive about its financial positions and outlook.
The balance sheet for the year ended April 30, 2013
All of Nuvilex's total liabilities are current and they exceed the company's total assets in a ratio of 4:3, rounded up to the nearest $1 million. The total current liabilities stand at about $3.8 million, compared to total assets valued at about $2.9 million. With total stockholders' equity deficit standing at $1.5 million, and having already issued nearly $40 million in paid up capital, Nuvilex's accumulated deficit stands at about $41.4 million.
This means that the stockholders of these shares will be more than willing to promote the stock and cash in to recover their money before its is too late. Recently, the stock rallied from about $0.03 in February 2013 to $0.22 in May, but it is now down to about $0.16. The stock has no institutional holders, while insiders hold about 13% of shares outstanding. Also note that, the company has no long-term debt position. For some companies, this is usually a positive trait, but not for Nuvilex. The lack of a long-term debt position compared to nearly $4 million in current liabilities is indicative of the way creditors are afraid of committing to long-term agreements with this biotech.
The income statement
With total revenues of just $12k for the year ended April 30, 2013, compared to total operating expenses of nearly $1.7 million, even, trying to determine the percentage of revenue to operating expenses contrary to the conventional reciprocal would seem like a joke, because it is less than 1%. the company's fiscal year 2013 revenues fell by nearly 82% from last year, while the most recent quarter revenues fell by 100%, from the same quarter last year. No point in talking about earnings because this company barely dreams of profitability.
With revenue per share estimated at $0.00, it is unthinkable how anyone would want to buy the stock at $0.01, leave alone the current price of $0.16 per share.
The company reported a basic loss per share of about ($0.00), an improvement from last year's ($0.01), but still this probably down to the massive issuance of new stock during the year, as compensation to the staff and settlement of various debts. During the fiscal year 2013, more than 27 million shares of common stock were issued, adding to about 55 million issued the previous year.
This further adds the pressure to the stock, as the staff members and debt holders would be looking to cash in once the stock reaches their desired price.
Nuvilex grew its cash balance from last year's 15k to about 143k. However, based on the company's wage bill, this is not even enough to pay the employees. Therefore, I expect more issuance of shares towards this course, which would further put pressure on the company's stock.
Additionally, all of the cash came from financing activities and borrowings, totaling approximately $1.2 million. The worst part though is, none of it was well put in investing activities, which puts question marks over the company's growth and investment in R&D. The company seems to be putting too much money on operations, which leaves nothing for investments, thereby begging the question how it intends to drive its growth campaign, or turnaround for that matter.
The company claims to have just four members of staff, as of April 30, 2013. among them, are four board members, holding the positions of CEO, CFO and COO, very qualified professionals in their respect. I want to believe that if at there are any other people working for Nuvilex, then they must be freelancers or some part timers.
How do you run a company which requires intensive research, like that? Additionally, how does an 18 year old company have only 4 members of staff? This is probably a sign of stagnation since inception. The three senior executives joined the company over the last two years, but I doubt whether they will be able to trigger any change given Nuvilex's spending habits.
Nuvilex has some good products, but it seems as though some of them have lost taste with consumers, arguably due to luck of improvements. One of the promising products is medical marijuana, which has recently received approvals for use along with its various constituents in various states.
However, the slowdown in the company's product development, along with its low appeal to creditors means that competitors have the edge. Therefore, Nuvilex's products, which it sells via retailers, or directly to consumers are likely to continue experiencing slowdown in sales, reducing the company's value to zero.
Nuvilex's revenue per share stands at $0.00, while it trades at $0.16. The company's financial positions is undesirable, while its outlook continues to dwindle.
Furthermore, creditors are not willing to make long-term commitments with the company, and the little money Nuvilex has received, seems to be going towards increasing paid up share capital, which is in turn issued to staff and debt holders for compensation and settlement purposes, respectively.
This is a sinking ship, Get Out, or you will drown with it. If you are a sophisticated investor, then a short position would be in order, because this stock is worth $0.00.
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.