Stay Away From Octillion

Admitted Stock Manipulator at the Helm

First, see David Phillips’ article on the company’s CEO, Harmel S. Rayat, and his other failed companies. Then take a look at the SEC’s website to find out that Octillion’s CEO and majority shareholder was previously fined $20k for illegal stock promotion. Andrew Left of StockLemon wrote a nice (if dated) article on Rayat’s company Hepalife (OTC:HPLF) back in 2003. David Phillips (of The 10Q Detective) wrote a more recent attack on Hepalife.

The CEO is still working at a number of his other penny stock companies. Therefore, the company states (in the May prospectus):

Our officers and directors are also officers, directors, and employees of other companies, and we may have to compete with the other companies for their time, attention and efforts; none of our officers and directors anticipate devoting more than approximately twenty-five (25%) percent of their time to our matters.

That the officers of the company are not full time is not exactly a good sign!

Valuation

As of June 29, 2007, the company had 51.125 million shares outstanding. At a recent closing price of $4.40 per share, that gives the company a $225 million market cap. The company has a book value of just under $1 million.

Back in mid-April (see the 8k) the company sold shares for $0.50 a piece in a private offering (actually, three warrants were included with each share, so this overstates the price). Has the company really become 10 times more valuable in the last 5 months?

Misleading Statements

Octillion triumphantly announced that NREL research had validated its own methods. However, as of right now, Octillion has nothing more than an idea and some silicon dust. Sure, the method they claim to use seems to work well. But I doubt Octillion, with a minuscule R&D budget, will be the company to get this technology to work consistently in the lab, let alone in a commercialized product. Octillion has issued another press release to claim that other solar power breakthroughs validate its technology.

The company likes to mention that the solar technology is covered by 10 US patents. However, the company does not own those patents–they are owned by U of Illinois Urbana/Champaign. It is only working to commercialize the patents. Since the company first started working with UIUC from August 2006 until May 2007, it has paid a grand total of $89,000. Not exactly a world-class research budget (see page 4 of this prospectus for details). Over the last three months, the company spent $151k on investor relations and only $27k on R&D.

It turns out that Octillion does not even have an exclusive license to develop and market the technologies it is investigating:

From page 17 of the company’s recent 10Q:

During the term of our ISURF Agreement and the UIUC Sponsored Research Agreement, we will determine whether to acquire an exclusive license from, respectively, ISURF and UIUC to the technologies underlying the agreements. The final terms and conditions of any such licenses cannot now be determined. If the results of the continuing research projects do not warrant our exercise of our option to negotiate an exclusive license to market the ISURF Nerve Regeneration Technology or the UIUC Silicon Nanoparticle Energy Technology, we may need to abandon our business model, in which case our shares may have no value and you may lose your investment. So even if these technologies end up working, the universities could demand more money for the licensing rights than Octillion could pay, and another company with deeper pockets could end up buying the license.

Knowing When to Sell

The brothers of CEO Harmel S. Rayat sold a large chunk (1.7% of the company’s shares) of their stake in the company in May (or soon thereafter, as set forth in the May prospectus, page 46). Other selling shareholders included two corporations that were wholly-owned by employees of Octillion (6.5% of the total shares outstanding).

Is Smart Money Buying?

David Gelbaum (a noted philanthropist) recently filed a 13D, stating that he (actually, a trust benefiting him and his wife) owned 6.7% of the outstanding shares of Octillion. However, considering his large stake in another OTC stock that I consider to be greatly overvalued (Worldwide Water, WWAT.ob), I doubt his investing prowess.

Conclusion: Stay Away

I peg Octillion’s fair value at $1 million, its book value. More aggressive speculators might believe it to be worth 10x book. Cynics might value it at $0 considering its CEO’s track record. No matter what, it is at least 25x overvalued. For more information, as always, check out the company’s SEC filings.

Disclosure: I am neither long nor short OCTL. See my disclosure policy.

Comments

[calvino:]

Excellent coverage! Junk like this ruins the reputation of the entire small cap alt-energy sector. WWAT does have at least two major projects, an airport and a chicken coup, which is different from the pump and dump happening at Octillion. Gelbaum's participation is a mystery, perhaps naive, and will hurt those that believed it validated their longs.
Another example of the gutted staff of the SEC lacking both, the staff and direction to prevent market fraud.

Speaking of the SEC blithely sawing logs at the switch, (how about that revolving SEC director door), today, Cyberlux CYBL filed a fraud complaint against it's offshore Millenium Partners hedgelenders for naked short selling and deliberate destruction of share price. I have been posting about this on the Yahoo board for months and writing the SEC much longer. Hellooo Artie, Mr Levitt, yohoo!

Although WWAT is using subsidies on these projects, that in itself does not mean it can not be profitable on its own at a future date. Still, their shares late moonshot does seem destined for a near term terrestrial landing.

2007 Sep 06 03:31 AM

[Michael Goode:]

Thanks for the kind words. Note that I have done little due diligence on WWAT. I just did not see in it the kind of promise that would instantly recommend it as a good investment and recommend its investors as savvy people.

2007 Sep 07 03:35 PM

[Michael Goode:]

Thanks for the kind words. Note that I have done little due diligence on WWAT. I just did not see in it the kind of promise that would instantly recommend it as a good investment and recommend its investors as savvy people.

2007 Sep 07 03:35 PM

[nvestgrrl:]

I'm what you insultingly call a "penny stock investor." I've seen numerous emails about this stock and I and others I know have done due diligence on the companies and Harmel Rayat. His companies are tech and biotech incubators and the business model is to fund university and government research in return for all or partial commercial rights. To my understanding, they provide whatever funds are required, and do not need to pay the overhead costs that private companies would have to absorb. To my mind it's a pretty smart model. These aren't research companies, they're marketing companies designed to increase shareholder value by either taking a technology to market or finding a deep-pocket partner that can. As to "pump and dump," if you would look carefully at who's buying and selling, you'll see that OCTL directors, brothers, whatever aren't selling at the highs, so how exactly would they be profiting from a pump and dump? What I can't abide by are the shorters who prey on small investors in stocks like these. I'm holding on for the long term, and so just have to bear it, but it still makes it hard for a small company like this to raise capital. And your self-serving "investigation" doesn't help either. I don't know anything personally about Mr. Rayat, but I know that any stock promoter found guilty of investor fraud by the SEC is prohibited from ever promoting again. You obviously did not investigate with an objective mind, and wrote your analysis without understanding this kind of business model, or knowing that a private equity group recently committed something like $10-12 million -- you can bet they did their due diligence and must have found something to like. Seeking Alpha is a powerful forum. I follow and appreciate guidance from thorough and objective analysts. So please do your research before writing something that could wrongly reduce investors' (ie my) stock values.

2007 Sep 07 04:33 PM

[Michael Goode:]

I have nothing against technology incubators or other such risky investments. But if I were to invest, I would invest with someone who has a good track record. Have investors in other Rayat companies made money? Plus, any private money that invests in companies like this invariably gets cozy terms, such as shares below market value.

Also, I don't know how my 'investigation' is self-serving. All I gain from disparaging Octillion Corp. is a few hits on my blog (on which I have no advertising). I am neither long nor short Octillion, so I do not gain if the stock tanks or zooms skyward.

2007 Sep 10 11:52 AM

[nvestgrrl:]

Wrong again. If you read the company's press releases you'd see the private equity was placed "at market value."

Self serving = trying to look like an analyst. But without the thoroughness of a real analyst you can do much more harm than good. Please be more careful with your forum.

2007 Sep 10 12:58 PM

[Michael Goode:]

First, my point still stands--has Octillion done something in the last few months to make it 10x more valuable?

Second, the press release does not mention that it was placed at market value.

Third, a look at the price chart on pinksheets.com shows the company's stock never got down to $0.50 per share.
pinksheets.com/pink/qu...

Fourth, the 'units' from the private placement included 3 options for each share. Even if the stock was at $0.50, the options make the units more valuable, meaning that the private investors received more value than the market price.

If I am so wrong about Octillion, and I am not thorough, why not believe David Phillips, who is a professional analyst? He hates Octillion as much as me.
10qdetective.blogspot....

2007 Sep 14 08:13 PM

[Michael Goode:]

And from the company's recent prospectus:

"FISCAL YEAR 2007 [stock price]
Third Quarter (March 1 through May 8, 2007)
High: $1.37
Low: $0.60"

So, yeah, that was a below market price for the PIPE.

If you want to check, see p24 here:
www.sec.gov/Archives/e...

2007 Sep 14 10:56 PM

[Michael Goode:]

First, my point still stands--has Octillion done something in the last few months to make it 10x more valuable?

Second, the press release does not mention that it was placed at market value.

Third, a look at the price chart on pinksheets.com shows the company's stock never got down to $0.50 per share.
pinksheets.com/pink/qu...

Fourth, the 'units' from the private placement included 3 options for each share. Even if the stock was at $0.50, the options make the units more valuable, meaning that the private investors received more value than the market price.

If I am so wrong about Octillion, and I am not thorough, why not believe David Phillips, who is a professional analyst? He hates Octillion as much as me.
10qdetective.blogspot....

2007 Sep 14 08:13 PM

[stocklist:]

I cannot agree more with "nvestgrrl" !!!

2007 Sep 13 02:08 PM