Poly Shield Technologies: An Overvalued Short - An Update

| About: Triton Emission (DSOX)
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Poly Shield's 10K reveals more red flags.

The company is dysfunctional with no product revenues, mounting losses and debt, and no full-time employees.

SHPR shares are overvalued and essentially worthless.

In February, I wrote an article that discussed an overvalued short candidate - Poly Shield Technologies (SHPR) (I highly recommend that readers review the February article before proceeding). As a brief follow-up, Poly Shield's 10K for 2013 just came out, and the fine print says it all.

We have not yet completed the installation of any emission abatement systems with either of LMS or Prestige (their two customers announced in the summer of 2013). We do not currently have any other sales or distribution agreements with respect to our Emission Technology.

We do not have any employees and rely on the services of external contractors (including the CTO).

Basically, the company has no product revenues, -$2.2M in 2013 losses, mounting debt, and no employees to execute its sulfur fuel reduction dream.

On the positive side, the company resolved its stand-off with Rasmus Norling, CTO, retiring 100M of his shares and transferring some of his patents to the company. Mr. Norling was able to keep 54M shares, and currently earns $22.5k per month as an external consultant.

But in addition to its 88M shares outstanding, the company now has 17M warrants outstanding with a $1 exercise price, including 10M issued to Mr. Norling in March, and 7M to a major lender. Half of those 17M warrants are cashless, which reduces the likelihood of the company receiving any cash proceeds from these dilutive warrants.

Poly Shield will be carrying $3M in high-interest debt (including this quarter's borrowings) with no revenues or cash flow to repay its financial burden. In the likely scenario that Poly Shield defaults on one of its loans for $2M, then investors are further diluted by the following toxic warrant clause:

If an event of default occurs..., the Lender shall have the right to exercise its warrants at the lesser of $1 per share or 50% of the volume weighted average price of our common stock... The warrants may be exercised by way of cashless exercise...

Poly Shield raised an additional red flag by recently forming a BVI company. Certain OTCBB stocks have used BVI subsidiaries to avoid SEC regulation, and not coincidentally, led to insiders bilking the investing public. Poly Shield may claim to have legitimate reasons for forming a BVI subsidiary, but I remain skeptical.

We are still waiting for substantive commercial progress. Retiring shares will not move this stock higher. At $0.90, Poly Shield still has a fully-diluted enterprise value of $90M with no product revenues and heavy losses. Toxic warrants and imminent future funding needs will pump-up the share count, pressuring the stock price lower. Whether the market cap is $165M at a price of $0.88 back in February, or $87M at a price of $0.90 today is inconsequential. The big picture is Poly Shield is not worth anything in my view, and aside from insiders, nobody is likely to make money on this stock.

Disclosure: I am short SHPR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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