A $234 Million Company Worth $0: Short Biozoom

| About: Biozoom, Inc. (BIZM)
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Biozoom (OTC:BIZM) is a "development stage" company whose "plan of operation" does not involve generating any future revenue. The firm's only source of "net income" was from the "extinguishing of debt," and it is my belief that the current market capitalization of $234.14M is completely unwarranted in light of the fact that there is no underlying business, and I further believe that shares have simply been bid up due to a press release in which it touted the use of the "Biozoom scanner" was found - by Charite University Hospital Berlin - to lead to youth making "healthier choices" after using the scanner.

With the press release dubious and the underlying business non-existent, shares of Biozoom are likely worthless and as a result, represent an excellent short opportunity.

The Equity Is Likely Worthless

Biozoom Inc., formerly known as "Entertainment Art, Inc." - in its own press release - claims that it "designs, provides and sells a line of fashionable zip bags" and that it is "not earning any revenues from its planned principal operations." It is quite plain that with no revenue, there will be no cash flow, which - assuming that at least one employee is getting paid - suggests that the firm will be cash flow negative for the entirety of existence. This is puzzling and unsustainable considering that the firm's most recent balance sheet indicated that the firm had no cash and $18,492 in current liabilities.

With no revenue and no expectation of future revenue, barring a massively dilutive secondary offering (which would eventually be burned through), the whole enterprise is worthless, and thus worth precisely $0.00/share.

Share Price Inflated By Puzzling Press Release

The share price is currently inflated as a result of a dubious press release in which the firm touted the development of "the world's first portable, handheld device for real-time spectroscopic analysis of biomarkers in the human body." The press release went on to note that the firm is, "willing to discuss intellectual property (IP) licensing and other models of partnership." Further, the press release, in true stock promotion fashion, made the following claim:

Developing new applications for handheld and nano-scale spectroscopy will remain the company's core business. Licensing Biozoom's intellectual property to other innovative companies would be an additional revenue stream for Biozoom.

This is misleading as an "additional revenue stream" suggests that the firm had a revenue stream to begin with. According to the firm's own filings, it has no revenue nor any expectations of revenue, but it seems that shareholders believe that potential "licensing" revenue of its products has turned an equity that, at IPO, was worth $0.20/share with 1,810,000 shares outstanding (implying a market capitalization of $362,000) into a stock worth $3.92/share with 59.73M shares outstanding (market capitalization of $234.14M).

This, very plainly, leads investors to ask the following questions:

  • What is the technology that has been developed? (especially since just a few months ago this firm created "fashionable zip bags" and not any technology)
  • If the technology were credible, would it have any value?

I believe that there is very little - if any - value here, and there are several clues to demonstrate this.

What/Who Is Biozoom?

According to the firm's website, Biozoom is a "handheld transdermal spectrometer for instantly detecting biomarkers." The site's description of the technology continues on to say that the product, "non-invasively analyzes data critical to managing and improving a healthy lifestyle." Now, before we delve deeper into the "technology," I would like to point out that while the website looks mostly professional (you can find it here) you will notice the curious omission of a "careers" page:

It would appear that the only "employees" of this firm are the three members of the executive management team, one of whom is in charge of sales, and the CEO's background is in economics, so this means that the only R&D/product development is performed by the CTO Wolfgang Kochert. The company's current market capitalization of $234.14M suggests that each employee is worth $78M. One would imagine that a company worth $234M on the back of the future promise of new technology would at least be considering hiring some engineers, or perhaps some salespeople. What about a Chief Financial Officer or an accountant?

Further, the company pitches itself as a firm whose "primary business" is developing "new applications for handheld and 'nanoscale' spectroscopy," but is a single PhD worth $234M in product development? Particularly one whose background spans work as a "consultant" for a Japanese automotive company and the lead of development projects for combined home heating and power based on Stirling engines?

The Technology: All Glam, No Substance

It should be a warning to all potential investors when a press release from a 3-employee, no-revenue company (only one involved in R&D) has the following, keyword loaded title,

Biozoom's Advanced Nanospecstroscopy Based On Licensable, Cutting-Edge Intellectual Property With Many Possible Applications

Further, the article's subheader reads as follows,

More than 15 international patents and pending patents comprise a potential revenue source and a powerful R&D resource for licensees

If you look at the title, you will notice buzzwords such as "Licensable," "Cutting Edge Intellectual Property," and "Many Possible Applications" - all stock-promotion worthy keywords. Further, naive investors are usually impressed with phrases involving "patents" and "powerful R&D resource," despite there being very little substance behind them.

Parsing the press release yields interesting results. I parse the press release and provide commentary.

The patent-supported technology underlying the Biozoom scanner has been tested in clinical trials at respected institutions in Germany. Biozoom's portfolio of patented and patent-pending advancements span areas as diverse as optics, temperature drift, nanofiltration, data base management, spectroscopy and more.

First off, it is convenient that a press release oriented at US investors would cite grand clinical trials and institutions in Germany without providing any specific names and quotes from recognizable entities. Next, "Biozoom" has been around for less than 6 months, so is this release suggesting that this company - that, once again, six months ago made "fashionable zip bags" - has managed to develop a broad swath of patents and apply it to a "novel" technology in just six months' time?

Achievements in "optics" are usually hard won, and usually done so in collaboration in a concentrated academic setting by multiple PhDs in physics. We further see some suspicious claims when it comes to innovations in "data base management", "temperature drift," "nano filtration," "spectroscopy," and "more." So is this one R&D person/executive such master of software, optical physics, temperature drift (thermodynamics), and nanotechnology that he developed patentable achievements across a wide variety of difficult academic disciplines in under six months?

Biozoom's optical work alone has a myriad of potential applications outside of the company's strategic core health and wellness applications. For example, Biozoom's miniaturization of the Fabry-Perot Filtration could also be widely useful to improve future businesses. Where digital cameras use three filters to capture images, Biozoom's nanofiltration allows 256 filters to capture fine detail in a 1 mm by 1 mm area.

While most investors are swayed by this jargon filled paragraph, deconstructing it proves to be quite amusing. The "Fabry Perot interferometer" is used to control and measure wavelengths of light. The claim here is that Biozoom has taken this "method" and "miniaturized" it and thus is a novel innovation. If this is being applied in a "smaller" setting, then this is no innovation - it is an application of a well known technique in a new setting. If this is even being applied, it is likely nothing original, and certainly not worth $234M.

Does Biozoom Even Own Its Patents?

The final part of the press release is worth examining separately,

"The potential of this technology is greater than one company can exploit fully," said Biozoom's Chief Technology Officer, Dr. Wolfgang Kocher. "We hope that our intellectual property assets can be licensed to and utilized by other companies for a myriad of commercial uses outside of the health and wellness industries."

A quick trip to this filing with the SEC suggests that Biozoom may not even have control of the patents involved with this technology and may indeed not be "licensable" (at least not by Biozoom). See the following from the filings:

These are the patent applications for the alleged device that Biozoom has developed. Now, if you read further, you will notice that Biozoom during a "liquidation" transferred these patents (that appear to be critical to Biozoom's device) to Vodafone Ventures and OpS:

So it seems that not only has Biozoom been "sitting" on this technology for a while, it appears that Biozoom no longer even holds the patents for it, crushing any potential licensing and future royalties on this "core" technology.

What Does Biozoom's Product Even Do?

Finally, to top this all off, it is unclear what Biozoom's product even does. The firm issued a press release claiming that in test/studies at the Charite University Hospital in Berlin, the Biozoom device helped "young people to make better choices." First off, what does this even mean? Secondly, the company has been around for less than six months, so how could a "clinical study" determine whether a product that is at best in prototype stage help determine anything, particularly with respect to "life choices"?

The press release (and 8-K) attempt to attribute the "Biozoom" device had the following:

an audience that often resists calls for healthier living by parents and teachers-made healthier choices on their own after the Biozoom scanner enabled them to see the benefits of those choices. At the end of the study, 83% of participants had higher levels of antioxidants than before, and 20% of the students who smoked had quit smoking. For details regarding this study, see Part 6 Exhibit 99.1 in Biozoom's Current Report on Form 8-K filed on May 31, 2013.

So, wait a minute - the students made "choices on their own" after the Biozoom product informed them of the benefits of these choices? Who are these people trying to fool?

There is likely no novel "technology" here, and if there were, it is certainly not worth $234M.

Short Biozoom

If you are looking for a short, then this fits the bill. $234M market capitalization with no products, a promised licensing/royalty stream that is unlikely to materialize, one individual in charge of R&D, boisterous claims of advanced patents and breakthroughs just under six months after transitioning from making "zip bags."

The balance sheet, the lack of revenue, the lack of employees, and the general bombast and keyword spamming in the press releases says it all. There's nothing of value here for investors, and at these prices, there's plenty here for short sellers. I expect the shares to be worth within a rounding error of $0.00/share, which suggests 100% downside from current levels.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may go short BIZM.OB at any time.