In a recipe that has become routine on the OTCBB, start with a group of promoters who have all been associated with a medley of ugly penny stocks. Find an obscure company in China and a dormant reporting Bulletin Board shell company -- a mining company that’s never mined anything, for example. Buy the Chinese company for as little cash as possible, say about $200,000, (hey, that’s cheaper than the shell) and millions of shares of the shell’s stock in a reverse merger. When you rename the thing, be sure to combine the words “China” with some hot technology buzzword, digital will do. Swizzle in a glossy paid promo piece (spend about as much on the promo as the shell and the China company combined), and Presto! ….. Just like the TV chef pulling the “already baked” cake out of the oven, we’ve got ourselves yet another actively traded $200 million company.
With this simple recipe, the insiders have cooked up a few million more shares to the public at a few bucks apiece – shares that cost them pennies. And when the selling is over, they just move on to the next one. Why not? You can’t beat the profit margins.
With a blizzard of incomprehensible press releases and some unauthorized use of IBM’s eye-catching name in a headline, the promoters have created this illusion that is nothing more than sleight of hand tricks to the astute investor.
Case in point: a website was created on December 1, 2006 in order to promote the stock of China VOIP & Digital (OTC:CVDT). The photo is pretty, and we’re comforted to know that its “their Stellar Stock Pick for 2007”……….but who wrote that opinion? This report was paid for by Wexford Advisors for the cost of $550K. No address, no phone…..totally unidentified …. and no, they are not listed in any filings, either.
Could It Be More Obvious?
Remember Smart Tek Solutions (OTCPK:STTK)? Last March this company’s stock ran from pennies all the way to $1.75 as they promised to solve the bird flu problem in China with RFID bracelets for chickens. Less than one year later, the stock now trades at .21 cents. Needless to say. no pot-of-gold in China from that one. The CFO of STTK was a gentleman named Denis Gallant, named in the filings for … you guessed it…….CVDT.
As of last SEC document filed on February 7, CVDT’s corporate phone number is still a cell phone belonging to Denis Gallant at (506) 872-4033.
Prior to his stint at STTK, Mr. Gallant was also a the CFO of Intelisys Aviation of America (IYSA.OB), which now trades at .0004. MSNBC went as far as to call that stock a “con artist’s playground.”
Not only does CVDT share the same officer as STTK but they also share the same IR representative: Peter Nasca. A sampling of some other Peter Nasca deals are:
Smart Tek Solutions (OTCPK:STTK) -. 21 Tech Laboratories (TLBT.OB) - .0251 Advantage Capital Development (OTC:AVCP) - .006 XStream Beverage Net (XSBV.OB) -.09 Dialog Group (OTC:DLGO)- .10 Transworld Benefits (OTC:TBII) - .0058 Americana Distribution (OTCPK:ADBN) - .0003 Epixtar Corp. (EPXR.PK) - .005
I featured Epixtar a few years ago when it was trading over $7.00 per share – before it was descended on by regulators.
So What’s this Company Made of ?
The best glimpse we get into the financial health of CVDT is the 10Q that was published on December 20, 2006. This is what our $200 million company looked like as of September 30, 2006.
Cash- $345,000 3 month net sales- $152k (versus 197k same 3 months in 2005) Net loss for 3 months - $18,526 (down from net income of $108K same 3 months of 2005)
So not only do we have a small rinky dink business. We have a rinky dink business that is also shrinky – declining results on the top line as well as the bottom line.
Old Technology and no investment in R&D
The company’s “Intangible Asset” is the two sets of software authored by third parties and acquired in 2003. These sets of software comprise the “core technology” of the Company's VOIP business. The intangible asset is being amortized over a 5-year period. Accumulated amortization at December 31, 2005 and 2004 amounted to $46,327 and $28,232 respectively. The annual amortization for next twenty-eight months will be at 17,373 per twelve months.
In December 2006, the Company issued 400,000 shares to a “consultant” for consulting service and issued 500,000 shares for the private placement of US$1,000,000.
Who is this consultant and how do we get that kind of gig? And who got the cheap shares in that placement?
Yet another recipe for disaster – for investors. For the promoters, it’s just another day in the fantasy kitchen we call the OTCBB.
Disclosure: Author is short CVDT.OB.
CVDT.OB 6-month chart: