How much would you pay for a company with $0 tangible assets $0 revenues that is listed in the Pink sheet markets(That is home to a whole host of frauds and pump and dump schemes)?
If you ask the shareholders of PVTA the answer is $250M(Per Yahoo and Google but its actually $300M, check their latest 10Q). Preventia describes their business model as
Preventia, Inc., a cognitive learning and development company, builds software tools for enhancing occupational and brain health and performance. It is developing a series of computer-based exercises for adults and children to improve working memory capacity. The company was founded in 2010 and is based in Toronto, Canada.
They never made a dime in their whole history and have also back in July engaged in a number of stock promoters for a promotion involving their ticker symbol(Always a red flag). It worked, their shares went from 20 cents to almost 80 cents. Currently they trade at 68 cents
This is straight from their 10Q
"For the three months ended June 30, 2012, we did not generate any revenues. We had amortization expenses of $0, bad debt expenses of $0, bank service charges of $0, consulting expenses of $0, accounting expenses of $4,000, office expenses of $0, legal and professional expenses of $7,437, and rent expenses of $0. As a result, we had total operating expenses of $11,437. We had interest expense of $0, resulting in net loss of $11,437 for the three months ended June 30, 2012."
That's for a company with a $300 million market cap
They took advantage of their inflated market cap and started to engage a bank Madison Street Capital to initiate a equity offering. They recently announced they are going to raise $10M from Magna group. We don't expect them to stop there, why even try to run a successful business when you can just tap in a clearly overvalued market cap and keep the cash around(to pay salaries and bonuses)
The vast majority of companies listed in the pk and OTC markets do not succeed. At current prices the upside to the stock has already been delivered, if the management doesn't create an amazing business without dilution pretty soon, shareholders will be stuck with that downside
Think of the following possibilities
The company is a fraud - Stock is worth $0
The company has a real business plan but it fails - Stock is worth $0
The company has a real business plan, succeeds but dilutes shareholders in the process(Remember they have very little assets and will need cash to operate) - Stock is worth perhaps 10 cents
The company has a real business plan and succeeds without dilution - Stock MIGHT be fairly valued, there won't be much upside from here since its NOT easy to create a billion dollar company. MAYBE the stock can go higher but as said previously that vast majority of pink sheet companies do not succeed
At current prices shares of PVTA are massively inflated likely due support from stock promoters, the company has no assets, no cash and is basically selling a dream to investors(Who will get shares at prices and terms public investors will never get) so they can use the cash to try to justify the market cap
We expect more equity offerings and insider selling to act as resistance to the stock leaving all the downside to shareholders. It is just too tempting for the management to cash in a $300M market cap. There are a lot of insiders that got in at less than 1 cent a share back in 2011
"On June 16, 2011, the Company issued 1,253,000 common shares (post split) at a price of $0.25 per share, for gross proceeds of $156,625, through a private placement. The Company paid $9,500 in offering costs in connection with this private placement."
They did a 40-1 split in 2012 so 0.25 is less than 1 cent per share. Insiders are sitting on a huge profit and we expect them to cash in on that
We are short PVTA and plan to add to our position