- Each stock has a market cap of $1B or more.
- No real revenues, bleeding cash, and dysfunctional businesses.
- Fundamentally they should go to zero.
A by-product of today's surging stock market is a number of extremely overvalued short candidates with no fundamental value. The following 5 short candidates are newcomers to my Seeking Alpha short articles, have enterprise values of $1.0B to $4.3B, generate zero or nominal revenues, lose money, and have dysfunctional business models. In fact, most of these short candidates have barely any employees and/or assets; there is nothing there. Fundamentally, they should go to zero.
*for companies without revenues, we use a default EV/Revs of 1000x
Neuromama claims to have an advanced neural search engine that will satisfy the needs of Latin American internet surfers. Based in Rosarito Beach in Baja California, Mexico, Neuromama's web site makes wide claims but has no customers. I searched some topics on NeuroMama.com, and the results became worse as I became more specific. For example, NeuroMama.com came up empty when performing a search for a popular French film, while Google found several different links to the movie. Today, Neuromana is a seed-stage company that needs to improve its product to have any value at all.
The company's small Russia/USSR management team somehow landed on the beach in Baja, including General Design and Marketing Strategist, Vladislav Steven Zubkis. Mr. Zubkis' influence is demonstrated by around 50 advisors, many of whom are "friends of Vladislav". According to this 2005 SEC filing, Vladislav Steven Zubkis orchestrated
a wide-ranging fraudulent scheme to evade the registration requirements of the federal securities laws and to raise money illegally… Zubkis himself falsely claimed that United Airlines had contracted with IBI (Zubkis' company f.k.a. Stella Bella Coffee) to provide coffee for all of its flights in the United States... The scheme orchestrated and executed by Zubkis generated more than $12 million in illegal proceeds. The scheme lasted for several years, and its complexity and fraudulent nature demonstrate a high degree of scienter (i.e. intent)... Zubkis continues to raise money from investors with respect to a real estate development project and thus amply demonstrates a potential to commit further securities violations. Based on our consideration of the relevant factors, we find it is in the public interest to bar Zubkis from association with any broker or dealer and to bar him from participating in any offering of penny stock.
Zubkis is not shy about his past. At the bottom of the advisor page on Neuromama's web site, he provides his own unconventional interpretation of his past actions.
To sum it up, Neuromama has to be the best fundamental short in modern history. The company is in part managed by a repeat offender of excessive securities fraud. Neuromama has neither revenues nor a marketable product. And somehow this stock has a valuation of $4.3B!
San Lotus Holding is a Taiwan-based travel agency. The company generated zero revenues since inception in 2011, has a LTM loss of $212k, but somehow carries an EV of $2.5B. For a simple travel agency to exist for three years and not have any revenues raises a lot of doubts.
One reason for the lack of revenues comes from this July 7, 2014 SEC filing:
Our officers currently serve as part-time travel agents for us and this may lead to a conflict of interest and a loss of business opportunities. Our officers' present part-time employment with us may divert potential clients and business opportunities for the company to their other employers, which may have an adverse consequence on our potential revenues. Our officers may be unable to spend adequate time developing the company's business due to their status as part-time employees with the company. Currently our officers and directors work 15-20 hours per week for the company.
San Lotus Holding's shares outstanding increased from 15M at the end of 2012 to 97M at the end of 2013 to 236M as of June 2014 to 837M as of August 2014. In my opinion, the company released its June 2014 10-Q five weeks after quarter-end, as opposed to six-to-seven weeks in previous quarters, in order to avoid showing the issuance of 601M additional shares on August 11, 2014. The August 2014 shares were issued at prices of $0.2021 and $0.2804 per share, a 93% and 91% discount respectively, to the current price.
The reason for this massive dilution was to purchase more property in Taiwan for future development. This land was purchased by its 100%-owned Green Forest Management Consulting subsidiary at fully appraised third-party valuations; but the payment came from shares issued at over a 90% discount to San Lotus' current stock price.
San Lotus has a cash-starved balance sheet despite its large capital increases. Proceeds from these capital raises are solely used to purchase real estate in Taiwan. Cash was only $49k as of June 30, 2014, while management's planned outlays are $579k for the twelve months ending June 2015. The above July 7th filing then states,
San Lotus and Da Ren (another San Lotus subsidiary) will not have enough funds to support themselves for remaining months and Green Forest is already almost out of funds. We will likely have to borrow funds from our President and Chairman, Chen, Li-Hsing, to sustain our operations until we are able to complete a private placement of our equity securities and/or mortgage our land. If we are unable to satisfy our cash requirements, we may be unable to proceed with our plan of operations. At present, there have been no loans to the company and it is unknown if the company will obtain needed funds in the future. We have no binding obligation with Mr. Chen to fund our losses and we have issued him no guarantee that we will repay him in the future.
Consequently, San Lotus may be put in a cash squeeze, forcing it to sell-off part of its real estate portfolio at a loss.
Other red flags include 1) an insider filing to sell 490k shares at $0.20, a 93% discount to the current share price (disclosed in the SEC filing of July 7, 2014), 2) Yu Chien-Yang, VP and Director, was indicted by the Taichung District Prosecutor's Office of Taichung County, Taiwan on May 17, 2013 (disclosed on page 18 of the latest 10-Q), and 3) a questionable $628k purchase of a California condominium and three vehicles in 2012.
To be fair, San Lotus does have $193M in real estate assets, including the two properties purchased in August 2014. Excluding real estate, San Lotus had a negative book value of $164k as of June 2014. So, in a rosy scenario, San Lotus is worth $193M or $0.23 per share. The stock, however, is currently trading at $3 per share, equating to a market value of $2.5B!
Crown Baus Capital is still working on its business plan. Until recently, the company was known as Cannabis Capital Corporation with a mission to actively pursue investment opportunities in the rapidly growing global Medical Cannabis Industry. With marijuana stocks going out of favor, the company announced on July 17th a new name - Crown Baus Capital, and a more ambiguous mission as a global acquisition-based conglomerate targeting five primary industries: High-Tech Incubation, Drug Development, Entertainment/Media, Education, and Financial Services. The only visible action taken so far from this more diversified strategy is the forming of a subsidiary called WebCongress, an organizer of tech conferences.
Crown Baus Capital's founder/CEO, Chad Johnson and outside director, Robert Kane, are also Co-Founder/COO/Director and CFO/Director, respectively, of Cannabis Science (OTCQB:CBIS). Cannabis Science has a history of pump-and-dump campaigns (massive issuance of cheap shares to insiders with subsequent promotional campaigns to retail investors - while insiders sell) and corporate governance issues - see here for details.
The old business plan for Crown Baus to partner with Cannabis Science to finance medical marijuana drug research has gone nowhere. Since inception in August 2011, Crown Baus failed to produce any revenues or even a medical marijuana business.
Crown Baus capital expansion is missing one key element - capital. As of the last SEC filing for the quarter ended January 2014, the company's only asset was $185 in cash. Liabilities were $43,431. In the meantime, the company remains delinquent in filing its 10K for the fiscal year ended April 30, 2014.
Thus, for a $1.4B valuation, investors receive a company without sales or capital with a questionable management team searching for a business model!
Moxian China claims to provide online marketing programs for merchants in China, including customer rewards, loyalty programs, and events. But in reality, Moxian incurred a loss of -$804k in the June 2014 quarter to produce its first revenues of only $16k. The company already has a net debt position of $4.1M, all short-term debt. Management expects cash burn to increase even more in the current and future quarters. Thus, Moxian is facing either 1) bankruptcy when cash runs out in Q4; or 2) extreme shareholder dilution in order to attract more capital to save this money-losing business.
The only press release aside from SEC filings was an announced cooperation with Dakasi Corporation (a milk-tea provider) in May 2014, which has thus far failed to produce any substantive business. Moxian's web site is a cluttered mess of mostly food and other low-priced items. The total aggregate value of these items is just a small fraction of Moxian's $1.1B enterprise value. Even worse, the revenues generated from these items are an infinitesimal 1/67,398th of Moxian's EV. There appears to be little incentive for investors to pour more money into Moxian, and if they do, it should be at a steep discount to the current price.
Blackcraft Cult is a small apparel company with a witchcraft theme. The company's one retail store/warehouse is located in Orange, California which was opened in April 2013. Blackcraft Cult went public through a reverse takeover of a public shell-like company - Merculite Distributing - in March 2014.
The company is a miniscule but legitimate niche apparel vendor that has developed a small "cult" following of its black, design tee-shirts, sweatshirts, and accessories. But a company of its size should not be public, and definitely should not have a $1B valuation. In the June 2014 quarter, the company had a negative EBITDA of -$35k and a -$23k loss, with a 21% sequential revenue decline to $345k. Larger peers like The Gap (NYSE:GPS), Urban Outfitters (NASDAQ:URBN), and Abercrombie & Fitch (NYSE:ANF) have an average EV/Revenue multiple of 1.2x, versus Blackcraft's revenue multiple of 597x. Abercrombie & Fitch, with LTM revenues of $4B and 11% EBITDA margins, has an enterprise value of $3B, which is in the same league as Blackcraft's $1B EV!
The fact that for the first time I can write an article about five new stocks with little or no fundamental value trading at market caps of $1B to $4B, that I have many more in the $200M to $1B range, that junk bonds are at all-time low-yields, that stock indices are near all-time highs, et al, are all signs of a toppy market. This would be a good time for investors to consider hedging/decreasing the risk in their portfolios.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.