Where Are Emcore's Commercial-Sized Orders?

“And we would have gotten away with it, if it wasn’t for you meddling kids!”

- Famous Scooby Doo line

Citron has observed with keen interest developments at Emcore (EMKR) since our first report March 18th and follow-up March 25th. There are a few significant events, all of which point to a ménage trios of convenience between Emcore, Green and Gold Energy and the head cheerleader analyst at Jefferies & Co.

The Coalition of the Willing

• Emcore needs Green and Gold Energy because it is the largest “customer” of record for its terrestrial solar products, representing 80% or more of its “backlog” for solar technology. Emcore desperately needs the appearance of a growing solar business as it needs to raise huge amounts of capital to cover operational losses.
• Green and Gold Energy needs Emcore because it is a tiny, thinly capitalized Australian business trying to create the appearance that it is a major player in the solar business. Green and Gold uses its purported Emcore purchase order as a credential to establish credibility. Green and Gold’s CEO has a multi-year track record of trying to raise money by selling promises which never come to fruition, including perpetual machine kits and rooftop solar electric devices. There is little or no public information available on any of Green and Gold’s “licensee” customers.
• Jefferies & Co recently underwrote Emcore’s private placement, and sees a lucrative cash-raise offering coming over the horizon.

Analyze This

Jefferies analyst John Lau needs to issue a big mea culpa to Wall St.

On March 11, he states clearly, “GGE is an important customer to Emcore.” He goes on to mention either Green and Gold or the Suncube over 12 times in a 3 page report to Wall St. There is no financial model included in the March 11 report.

And then on March 27, only two weeks later (after the Citron report of course), Lau publishes a report that is reminiscent of the glossy “scammy” mailers you might receive on an OTC company. The report is full of nice pictures of companies who are not Emcore and do not have business with Emocre…..yet not even one mention of Emcore’s major contract with Green and Gold. But it gets worse. In the same report, Lau’s financial model grossly understates Emcore’s losses, paints a picture of its emerging into profitability when there is not a scintilla of evidence that it is about to do so, and thereby completely misrepresents its financial situation.

There are several shocking deficiencies in Lau’s model, include understating operating income, net loss, and SG&A by all close to 100%... this is either an unheard of oversight or someone is really trying to pull a fast one. Even better, Lau’s projected share count into 2009 is lower than the company’s current share count. Someone has a lot of explaining to do here.

The Rain in Spain

Emcore and Green and Gold were both scheduled speakers at the much-anticipated CPV conference in Madrid. Green and Gold’s presentation is laced with preposterous material misrepresentations, and states a client list of companies who have no public presence. Meanwhile, Emcore claims GGE as its largest terrestrial solar photovoltaic customer. Emcore has done nothing to create accurate disclosure to the US investing public as to the actual condition of its solar business or the reliance that can be placed on GGE’s claims.

By appearing in the same venue with Green and Gold, and by having gone on record with a “To Whom it May Concern” letter expressing “support” for GGE, Emcore is in fact aiding and abetting the fraud perpetrated on the market by Green and Gold Energy.

Danzilio Letter [PDF]

Citron notes that “backlog” is the one financial metric about a company’s current business that is not typically audited. Therefore, it is especially subject to being used in a misleading way.

Therefore, today Citron calls on the SEC to investigate Emcore’s public statements about its solar technology business, and calls on Emcore to go on record to correct its statements with regard to its “backlog” of terrestrial solar orders — and specifically, that percentage of orders which are from customers who can be relied upon to pay for their purchases.

SEC Letter on Emocre [PDF]

Let's Make a Deal

Subsequent to the CPV conference in Spain, Emcore has announced two deals:

1. Buying additional fiber assets from Intel (INTC), and
2. A solar deal in China.

As to the former, Citron notes that this follow-on asset purchase requires zero cash, just some freshly minted stock, which Emcore has in good supply. Citron observes that Intel is not in the habit of giving away attractive, profitable businesses for free. We believe that as these integration and operational numbers begin to flow through Emcore’s financial statements, the gusher of red ink will intensify. No doubt Emcore’s quarter will be heralded by headlines of “Record Revenues”… but without sating its ravenous appetite for the public’s investment money, the losses generated by these “record revenues” are simply not sustainable.

As to the latter, Citron notes that aside from the slippery accountable-to-nobody future promises, the stated deal is for 60kW of solar technology. While no terms are announced, but by extrapolating from previously published numbers about Emcore’s backlog, it's possible to compute a value of 60kW at about (……drum roll…..) $18,000. …nothing more than a college science project.

CITRON CALLS UPON EMCORE AND JEFFERIES TO COME CLEAN

The only way investors can validate a technology as a business is if we see valid orders from customers. Where are the commercial-sized valid orders from Emcore? Green and Gold is the only major customer. Emcore has gone out of its way to perpetrate the fraud by not only writing letters of recommendation for Green and Gold to induce investors, but more importantly by lying to its own investors by stating in a press release, “Green and Gold Energy is a world leading CPV system provider.”

In our next report, we will show how this whole circle of hype is not new for CEO Reuben Richards, but rather he has been promoting fictional backlogs and unfulfilled promises for years.

Disclosure: Author is short EMKR.

Comments

[schmitt]

I'm inclined to listen to what you have to say Mr. Left but re-distributing someone else's intellectual property without license is a pretty stupid mistake. Do you have the permission that the document demands?

"Jefferies & Company, Inc. research reports are disseminated and available primarily electronically, and, in some cases, in printed form. Electronic research is simultaneously available to all clients. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Jefferies & Company, Inc."

Big mistake.

[icarus6700]

Ever heard of a conflict of interest? Taking out a short position on a stock and then writing an article trashing that stock should be illegal. Period. How can anybody (like me) who is disinterested take what you say seriously? Shame on you for playing this stupid, greedy, essentially wicked game.

[jackiestuart]

icarus.. And how is Andrew's commentary any different than most of the posts on this site? The only difference is he is short the stock rather than long it. So it is ok to be a cheerleader, but not a critical thinker? Judge all posts on this site, long or short, on the merrits of the analysis.

[icarus6700]

Jackie, good point, but I don't trust articles that praise a stock either when their authors have a long position in it. There is a difference, though, in that an article that hypes a stock can do more damage than one that bashes. Think about the possibilities:

1) short author bashes stock justly => stock goes down to fairer value, author gains $, longs get hurt, possible harm to lousy product/tech

2) short author bashes stock unjustly => stock goes down unfairly, author gains $, longs get hurt, possible harm to good product/tech

3) long author hypes stock justly => stock goes up to fairer value, author gains $, longs gain $, possible help to good product/tech

4) long author hypes stock unustly => stock goes up unreasonably, author gains $, longs gain $, possible help to bad product/tech

To me, there is more justice in 3) and 4) than in 1) and 2). Maybe it's just me.

[WarrenBuffet]

Questions to ask Andrew Left, the author of this list of questions:

1. Are you the AndrewLeft who lost his futures trading license after the Futures Trading Association judged him guilty (after a hearing) of having defrauded numerous customers?
2. Are you the same Andrew Left who was a defendant in a class action lawsuit for having defrauded customers of a stock brokerage house?
3. Are you the same Andrew Left who obtained a license and sold stocks under the false name of Henry Lipton?
4. Are you the same Andrew Left who filed a fraudulent biography with the SEC in a filing by Detour Online that omitted any mention of the work history described above?
5. Are you the same Andrew Left who was forced to resign his position at Detour Online?
6. Are you the same Andrew Left who was accused by Detour Online of stealing $25,000 from the corporate coffers?
messages.finance.yahoo...

[jazz12344]

The article is very one sided and does not tell the whole story.

G& G may be the customer of record but EMKR has checked out, ships and bills the end customer who is buyibng the units. They require a large up front payment thatat covers most of their costs before they ship.
They have shipped to end customers and all is well. Shipments this month should be very significant in the results.

Please stick with all the facts when commenting.

I am not involved with the stock at the moment as I';m waiting for the market to decide which way to go.

[surfgrrl]

Mr. Left, I read from AP the following regarding EMKR's "solar deal in China" as you phrase it above:
"Emcore will initially deliver a 50-kilowatt concentrator photovoltaic system to be installed in Langfang, China. Emcore systems are designed to operate with high enough concentration to operate at a lower cost per watt than competing technology.

Once the small system is tested, evaluated and proven to be effective, XinAo will install CPV systems with 60 megawatts worth of annual generating capacity."

So it seems they are just beginning this process with a single unit: how is it you extrapolate this to be "nothing more than a college science project" ?
It is abundantly clear you have an agenda here, and intentionally misleading the reader is your course of action to further that agenda of discrediting EMKR with the goal of lowering the stock price and making a large profit on your short position.

[E.T.Explorer]

It never ceases to amaze me how vultures continue to exist. It is my understanding that Emcore is a leader in this Solar technology. It does business with top government agencies in space exploration. By the tone of this report I get the impression that this is also a fraud and emcore never supplied solar panels for any satelite. The Intel transactions ...HHHmmmm. Maybe Intel is in on the scam too. sounds logical doesn't it? I have one problem I wrote a querry to Citron the day Emcore dived from $9 to $6, asking them to tell me How they manage to get all this neat research done? it must cost Citron plenty. So where their revenues come from or for whom are they working for? To date I haven't heard from Citron yet. The point that irks me the most is why all this dirty laundry is released at this point in time? and not when emcore was going from $4 to $15 a share but when emcore shares where settling at the $10. mark? This kind of analyst smear reporting can be noted throught the stocks spectrum. Today I noted one on Alcatel, Cisco, Nortel but to name a few. So, is this how this stock market crap game is played? There is a time the share prices is driven up and to the moon with no news or little news altogether and when a stock finds a level of support it is hammered by every Tom, Dick and Harry in town that the price of the shares are not worth the paper they are written on?My view is like that of any sport , two oposing teams one for the bull side of the stock and one for the bear side of the stock and who looses the most in the audience. Those who go long or those who short it. Whom we have to thank ? The fortune teller Analysts, of course. Who may be the first in and first out no matter in what direction the price of any stock is headed for. Where is the SEC. or GOVERNMENT in all this? At their cash registers noting whether the economy is expanding or collapsing as is going on with mortgages and credit bad debts. WELCOME TO CAPITALISM AND AMERICA THE LAND OF EXPLOITATION.

[aurora703]

As they acknowledge, Citron is "short" Emcore and stuck holding their position after a lot of good news from the company. Now, they want to drive the price of the stock down so that they can unload their short positions, while leaving other shorts holding the bag. Anyone doing DD on Emcore will quickly realize that the company has a very bright growth future in fiber optics and solar (to be spun off in investors).

[icarus6700]

I sincerely hope that Citron gets hammered in their short positon and has to cover in shame. What scum.

[zigger]

having done some work for Emcore in the past, I can say that they've put a lot of effort (starting about 4 years ago) into solar terrestrial PV. And, their cells have always been very near the top of the heap for overall efficiency. I am very impressed with the advances they have made in the past 4 years. Whether or not they capture a significant market with this technology remains to be seen, but i believe they are on the right track.

[Foxinvestor]

Andrew Left's spurious comment about Emcore only serves his short selling interests. As an analyst who is very knowledgeable about Emcore, I can emphatically state that the company has cutting edge technology and will do very well. The SEC should charge Left with securities fraud.

[deadpumpers]

Andrew, great article man. I've joined you for the ride down and enjoy your continued assault upon this mound of papery promises from Emcore. To all you longs, as soon as you get customers, let me know so I can cover.

[zigger]

deadpumper,

is is time to cover yet?

[Foxinvestor]

Andrew Left posts spurious comments about companies he plans to benefit by short selling. As an analyst of Emcore and very informed about their business prospects, I can emphatically state that Emcore will do exceedingly well in the solar markets. They possess cutting edge technology.

[drubert1]

Great "homework":

There was a new CEO at the time of his emcore short selling statement.

He said Richard, that`s wrong :-)
In his newer citron short selling statement, he said Hau, that`s wrong :-)

Next time you shoud say it`s Hou.