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Archive for January 25th, 2013

An Echo, but not Sound

Friday, January 25th, 2013

Time for my penny stock scoreboard:

TickerDate of ArticlePrice @ ArticlePrice @ 1/24/13DeclineAnnualizedSplits
GTXO

5/27/2008

2.45

0.040

-98.4%

-58.6%

BONZ

10/22/2009

0.35

0.019

-94.6%

-59.2%

BONU

10/22/2009

0.89

0.074

-91.7%

-53.4%

UTOG

3/30/2011

1.55

0.009

-99.4%

-94.1%

OBJE

4/29/2011

116.00

1.780

-98.5%

-90.9%

1:40

LSTG

10/5/2011

1.12

0.061

-94.6%

-89.2%

AERN

10/5/2011

0.0770

0.0002

-99.7%

-99.0%

IRYS

3/15/2012

0.261

0.015

-94.3%

-96.4%

NVMN

3/22/2012

1.47

0.070

-95.2%

-97.3%

STVF

3/28/2012

3.24

0.600

-81.5%

-87.0%

CRCL

5/1/2012

2.22

0.350

-84.2%

-91.9%

ORYN

5/30/2012

0.93

0.280

-69.9%

-84.0%

BRFH

5/30/2012

1.16

0.316

-72.8%

-86.3%

LUXR

6/12/2012

1.59

0.018

-98.9%

-99.93%

IMSC

7/9/2012

1.5

1.480

-1.3%

-2.4%

DIDG

7/18/2012

0.65

0.085

-86.9%

-98.0%

GRPH

11/30/2012

0.8715

0.428

-50.9%

-99.1%

IMNG

12/4/2012

0.76

0.747

-1.7%

-11.6%

1/24/2013

Median

-94.4%

-90.1%

You have to admire the consistency of capital destruction among promoted penny stocks.  Tonight’s loser-in-waiting is Echo Automotive.  Here is the bullet points to illustrate the future carnage:

  • Minimal Revenues
  • Negative net worth
  • Negative earnings and getting worse.
  • Management sucking in a lot in salaries.
  • The long list of stock promoters engaged by DH Media LLC.  This is only the email effort.  They paid $1.9 million to disseminate the shiny, colorful 10″ x 14″ “newsletter” via snail mail.    They paid $25,000 to the tout that wrote the copy, or maybe, spiffed up DH Media’s bullet points. Add in disclaimers in 5-6 point type.
  • Risk factors list longer than you can shake a stick at.
  • Predecessor company “Canterbury Resources” was pursuing mining interests in New Zealand.
  • Predecessor acquirer company “Controlled Carbon” was working on solutions to reducing carbon emissions.  They now own 70% of the combined company, paying four cents a share for their stake. (So why does it trade at near 80 cents a share now?
  • Now the combined company has some solutions that will double fuel mileage on vehicles that use gas.  What a wonder.

If you really had a technology that could double gas mileage, you would set up a joint venture, or a licensing agreement with one of the major automakers, and divide the profits  off of their high vehicle sales.  You would make a bundle doing that.  You would not buy a shell company in a different industry and let costs get out of control.  That looks like management does not have a real technology, but is simply trying to “take something off the top” through salaries and benefits, and perhaps rewarding friends.  After all, in the stub of the third quarter, Echo blew threw virtually all of the new capital that it raised, and for what?

The company might or might not be affiliated with the promoters.  The promoters say the company is not affiliated with the promotion.  In one scam, Luxeyard [LUXR] a different set of promoters did reveal that the company was paying the promotion to facilitate sales of stock.  The proof is in the pudding.  If Echo goes and does a PIPE or a secondary IPO, maybe there was some hidden affiliation.

The promoter also says they won’t trade for 90 days.  Now, the economics of this one is tough, because the parties that owned “Controlled Carbon” own 70% of Echo Automotive.  Dilution at low prices does not favor them, and I don’t see how they could easily monetize a large portion of their stake.

That leaves the remaining 30% of the company to be traded.  The promoter has spent over 2 million to promote the stock.  Unless he owns a big chunk, and sells into this wave, I don’t see how he makes money.  And if he does sell into the wave, and a lawsuit is brought later, that would stand against them in court that they violated their disclosure.  Maybe they take that risk anyway — they are working at the edge of the law anyway.

Except, maybe a lot of scammers work together as in this example from the FBI.  I’ve posited that idea before.  Given all of the non-identifiable shell companies involved, that could be going on here also.  It would be interesting to try to prove the existence of and break a ring like that.

Anyway, steer clear.  The company is horrid, and with promoters around, those that buy and hold for any significant length of time (say 1-3 months) are 99% certain to lose money.  Don’t be one of the pockets that gets picked.

Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.


Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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