As Raystream's Customers Mount, So Does Skepticism

Jan.16.12 | About: Raystream Inc. (RAYS)

Here we are again with another set of customer contracts for Raystream (OTC:RAYS) and their so called “proprietary real time HD video streaming application.” This past December they signed the Christian Broadcasting Network (“CBN”) for a “trial run” of their software. We look forward to hearing what CBNs software experts have to say about their “proprietary software” or that of Raystream’s dubious beginnings and questionable characters involved within their operation.

If a trial run wasn’t good enough for the fans of Raystream, the company recently announced a new “contract” that was signed last week with Grencomm Limited, a media content company that registered in 2006 but did not become fully operating until 2011. It is based out of the Caribbean Island Nation of Grenada (population 100,000). We decided that it was necessary to take a closer look at this Island Nation company and familiarize ourselves with the “where”, “what”, “when and “how” of Grencomm.

Many people may not be familiar with Grenada, however, if you’re a Clint Eastwood fan, you may recall a character he had played called “Gunnery Sergeant Tom Highway”. It was one of the better movies he starred in during the eighties, called “Heart Break Ridge”. The feature war highlight in the film was loosely based on a U.S. mission to invade Grenada in 1983. Their mission was to save kidnapped American students. However, if Gunnery Sergeant Highway were investigating Raystream he would send a small recon platoon to “take them out” because this is what he would find based on our ongoing investigation.

Our preliminary due diligence has revealed that Grencomm's website was established with godaddy.com on April 29th, 2011. Raystream has claimed that Grencomm.com is “Grenada's first online television station -- that has an audience spanning across more than 35 countries”. We were surprised as much as the next investor to learn that all those nations so quickly had an interest in an English speaking local news channel broadcasting out of Grenada. In any event, they began broadcast operations on October 1st, 2011. The live streaming channel functions through “LiveStream.com”. They appear to produce their own local news and program content.

Grencomm is also a reseller of VoIP which they aptly named “RUSH VOIP” which has three very overpriced service plans. Their top of the line premium service is $69.95 per month for just 800 minutes, but includes international calling. Grencomm also operates a brick and mortar Electronics Store out of Bruce Street Mall in St. George's, Grenada , selling way overpriced LCD TVs, laptops and mobile phones, among other products, which appear to have a 300% to 500% retail mark-ups (yes, the prices are in U.S. dollars). However, while Grencomm can at least boast a price on its products, Raystream doesn’t seem to offer any clarity on the value of their contracts with customers who will utilize its “product” based on free and open source software.

The major problems with Grencomm are not their overpriced products and services, or that this so-called progressive media company website dates back to April of 2011, or that it has a half-dozen or so dead links on its web-site. The fact of the matter is that we could not find any income generating ads on their website. Media web-sites rich in content normally have simple video advertising or links that go to third party on-line vendors. We question how Grencomm can even afford to pay a significant price for Raystream’s service when it appears that the company’s business model doesn’t seem to have been currently setup to generate a significant revenue stream…unless of course you need an overpriced LCD TV and calling plan.

Furthermore, we performed some additional due diligence leading us to believe that Grencomm’s relationship with RAYS is paper thin. To verify our suspicions of little revenue, we called Grencomm and spoke to the only available person, but she was able to answer some simple questions.

She acknowledged that:

  • Grencomm is not generating significant revenue
  • They can’t afford to pay RAYS much money
  • Due to economic slowdown, Grencomm is experiencing cash flow challenges

We are also not won over by the over-exaggerated statement from Grencomm’s Chief Financial Officer, Garvy Lousion, who ecstatically said, “Discovering Raystream was a godsend to us.” Why is the CFO making this statement instead of the Chief Technology Officer? Maybe the technology officer’s absence explains all of the dead links on Grencomm’s website. We suggest that investors perform their own due diligence on Grencomm. Based on the recent price performance of RAYS, maybe they already have.

We also suggest that investors take a sneak peak at the press release that RAYS promptly issued after last Monday's market close announcing an Evaluation Agreement with its newest customer, Cinefly. We could not have written a better story line. We presume this was in response to RAYS shares flirting with breaking down below $1.00. Once again, RAYS is “partnering” with what looks to be some small time outfit to build its dying credibility. All one has to do is read the following excerpt from Cinefly’s website to realize that even if RAYS passes this whimsical evaluation period, Cinefly will not likely be sending mountains of cash RAYS way.

Official Launch Coming:

The Cinefly site has undergone a complete overhaul and is about to launch. Thank you to all of the early content contributors; based on your feedback we've scaled back the original scope of the site have merged free videos, streaming rentals, download-to-own movies, DVD and Blu-ray titles into a single home page gallery. The revenue-sharing business model is still at the heart of it - contributing filmmakers and producers will have a platform to distribute and sell their content from and will share in advertsing and sponsorship revenues. If you're looking for fly fishing entertainment, it will be here: instructional videos, travel and destination films, classic TV series, documentaries, conservation and industry news. We're putting on the finishing touches and uploading content now. Thanks for your patience. – Rick

This release probably does more harm than good for RAYS image. Need we say more?

Thus far, Raystream’s management team has been unwilling to disclose meaningful details regarding the contracts signed by any party due to disclosure rules. Can anyone tell us what Raystream’s pricing structure is? No one knows, other than any entities that have signed a “contract” with RAYS, at least two of them being on a trial basis. There is little transparency, which leaves us to continue to question if Raystream will ever generate a meaningful revenue stream on any of its contracts. We only need to look no further than RAYS most recent corporate filings, and the answer is a simple NO. Raystream’s issues will always be born out of the fact that they are selling a free and open source software package.” As we stated in our original report, a pump and dump’s life usually ends as the stock break below $1.00, right where RAYS currently stands.

So how should Raystream shareholders assess the situation? Well as Gunnery Sargent Highway would say while addressing Colonel Meyer’s, “It’s a cluster @%$&, Sir."

Disclosure: I am short OTC:RAYS.