Holy Mackerel!
Ness Energy Intl.
Inc.
Symbol: NESS
(OTCBB)
Current Price: Bid .49, Ask .51
Thursday, July 18, 2002
By: Robert Church
Those of you old enough to remember
the "stop, drop, and cover" drills in schools during the height of the
Cold War will also remember the Distant Early Warning (DEW) line. This far
flung network of radar stations was designed to detect a Soviet
trans-polar nuclear attack and provide citizens with twenty minutes of
warning, presumably to put their affairs in order before being
vaporized.
The Fish-o-Matic software also has DEW capabilities,
and while searching SEC filings this week it detected the market equivalent
of a fifty megaton warhead targeted directly at the shareholders of
Ness Energy Intl. Inc. (OTC-BB NESS). A Ness SB-2 registration dated July
12, 2002 reveals that the company plans a PIPEs placement of fifty million
discounted new shares through Dutchess Private Equity Fund, LLP,
effectively doubling the outstanding shares of this five year old
"development stage" oil and gas exploration company.
Ness Energy is unusual even for an OTC-BB stock.
The company's promotions and stock sales have all centered on the
CEO "Hayseed" Stevens' claims of having the gift of "Biblical
Prophecy". Mr. Stevens claims that Bible passages have "revealed" to him the
presence of an enormous oil field beneath Israel's Dead Sea and that he
has been chosen by God to discover this oil. He envisions that its
discovery will lead to the draining of all Arab oil fields, precipitate
Armageddon, and lead to the Second Coming. This is not a story heard in
your typical Sunday school.
For years this vision was heavily promoted by The Prophecy
Club, a for-profit ministry in Topeka, Kansas. Mr. Stevens was a
featured speaker at club rallies throughout the country during which he
shared his vision of the discovery of an enormous oil field in Israel and
hawked his stock. The Prophecy Club website featured the prophetic
visions of Mr. Stevens and his wife as they discussed the upcoming
drilling on the Ness oil lease in Israel. Prophecy Club representatives,
in an answer to an LSR query as to whether they had received
compensation for this promotion, denied such to be the case, but
Ness is now no longer prominent on their website.
Unfortunately for Ness shareholders, Ness never held a lease
on oil properties in Israel. Despite the frequent mention of the
lease, a photo on the Ness website of Mr. Stevens proudly displaying a
lease, and numerous press releases touting upcoming exploration and
drilling activity, the only lease on oil properties in Israel were held by
Hesed Energy, a private company wholly owned by Mr. Stevens.
Documents obtained from the Israeli Oil Ministry indicate that the lease
expired in late 2001 and that not even basic seismic studies had been
conducted to determine the possibility of oil.
According to the most recent Ness Energy filing the company had cash and investments available for sale of
approximately $36,000 dollars, and accounts payable and accrued expenses
of $82,000. Total assets of $590,000 are offset by total liabilities
of $2,155,000. Total revenues from operations for the quarter were
$2,800.00, while operating expenses totaled $674,000. All in all the
company's financials smell worse than an outbreak of Red Tide. And
Mr. Stevens routine sale of his maximum allowable shares-earning him the
nickname "Haybail" on Lycos' Raging Bull message boards- doesn't exactly
add attar of roses to the olfactory mix.
Nevertheless, the current 59,000,000 outstanding Ness shares
and market price of approximately $.50 give Ness Energy a very fishy
market cap of over $29,000,000. If the PIPEs placement were to be
successful and the price per shares maintained, Ness would be valued at
$55,000,000. Our back of the envelope calculation of the value of a
company with a negative net worth, revenues of twenty eight hundred bucks
for the quarter, and an annualized loss of $2.5 million comes up with a
value a lot closer to zero. But then again, nobody ever accused us of
having a lot of faith.
The ostensible purpose of the PIPEs placement is to allow
the company to pursue Mr. Stevens' prophetic vision of discovering a
mammoth oil field in Israel. We personally think it has a lot more
to do with the upcoming BBX requirements. Half of the OTC is
currently in "get it while you can" mode before being deservedly banished
to the pink sheets, and we think Ness falls squarely into that pack.
We think the only thing sustaining Ness's price and
capitalization is the existence of thousands of naive investors who
believed in Stevens' "vision" and bought the phony lease story.
The Fish-o-Matic software agrees, giving Ness Energy a
reeking ranking of Nine Noxious Narwhals.
Nothing stinks worse than sanctimony.
HOLA!-Spanish Mackerel!
Golf Entertainment Inc.
Symbol: GECC
(OTCBB)
July 17, 2002
By: Robert Church
Dead Fish doesn't cover two penny
stocks. However, Golf Entertainment (OTC-BB GECC) has come to our
attention through a "basher lawsuit" filed against company critics.
This company, which proposes to become a powerhouse in the Spanish
Language Broadcasting industry from its NW Arkansas base, features a
cast in which some officers and affiliates have felony
fraud backgrounds.
The issue is also plagued with what we perceive to be
highly questionable asset valuations. Other matters of
interest involve the company's failure to inform investors and
the SEC of the issuance of fifteen million shares (and effective control
of the company) as a result of its settlement of a stock fraud
lawsuit that was likewise never mentioned, a five million dollar "funding
agreement" with a company that has no telephone number or address, and a
gag order on their transfer agent. The company's suit seems to be
based upon its taking offense at message board posters discovering
and posting these unpleasant facts.
GECC has an interesting and
educational story that deserves to be told, and we will feature them in a
multi-part series in the Profiles section of LSR.
Look for this series soon.
RED TIDE!
InsideTruth.com
Symbol:
Skull&Crossbones
Rating: One Noxious Nile
Perch
Friday, May 24, 2002
By: Robert Church
Occasionally naturally occurring algae in Florida
waters undergo explosive growth and release lethal toxins. Millions
of fish die and are washed up on the beach, creating a stench strong
enough to be detected miles inland. A stench similar, in fact, to that
coming from the website formerly known as
Insidetruth.com.
The USDOJ has filed racketeering charges against
insidetruth.com owner "Anthony" Elgindy an infamous short seller with the
personality of a wart hog, and, according to the grand jury indictment
unveiled on Wednesday a penchant for illegally obtaining information on
Federal criminal and civil investigations of companies and selling short
the stock of companies involved in the investigations. Authorities allege
that Elgindy then advised subscribers to InsideTruth.com
to short sell the stock and released the negative information to the
public, triggering a price drop and profiting from his short sales. Two
FBI agents were indicted on charges that Elgindy bribed them to provide
the information.
LSR readers may remember that we were involved in a
series of exchanges with Mr. Elgindy when we pointed out that he seemed to
be front running his short positions, first taking a personal position,
next advising his paid subscribers to take a short position, and finally
making his "reports" available on his public web sites. Elgindy "initiated
coverage" on LSR falsely reporting the outcomes of our
research and trading strategies, and in characteristic Tony "Stripes"
Elgindy style calling us punks and morons. We now know why that particular
pig squealed so loud when we stuck him. We were
right, although even the patented fish-o-matic
software was not powerful enough to detect bribed FBI agents, direct
extortion of company officers in exchange for calling off a negative
information campaign, and illegal access to SEC and FBI databases.
Don't get us wrong! Our fish-o-matic
software exists specifically to identify stocks that are over priced,
hyped, and likely to have significant price drops. If readers agree,
short the stock, and make a profit we cheer. However, when we make a
Dead Fish call it's based on fundamental research and analysis of public
information. Elgindy seems to have shot his dead fish in a barrel.
LSR stands on its record. We invite former
InsideTruth subscribers to evaluate our record of making
calls that are profitable, transparent, and honest. If that
interests you, welcome to our service! Because
InsideTruth.com stinks.
We rate the Egyptian born Elgindy, as One
Noxious Nile Perch.
Editor's note: A Nile Perch is big sucker
(up to 600 lbs.) that throws off a sickening stench when dead.
Magma Design Automation, Inc.
Nasdaq
Symbol: LAVA
Current Price: 28.30
Tuesday,
January 08, 2002
8:00 AM
By: Robert Church
When the Volcano Blows
Patrick McManus-my all-time favorite outdoor writer-once published a
book entitled Never Sniff a Gift Fish, eponymously named for one of
the book's short stories. The story, not one of his best by far,
outlined fishing and hunting substitutions for the more mundane aphorisms
used by those who think food comes from supermarkets and who fail to
appreciate that the sound of one branch breaking under your twenty foot
high deer stand is the first step toward enlightenment.
At first blush the shares of Magma Design Automation, Inc. (NASD-LAVA)
seem to have been a very nice gift fish indeed! 5.6 million shares of the
Cupertino, California producer and marketer of software designed to assist
in the development of complex microchips were first offered to the public
on October 20, 2001. Although initially priced at $13.00 per share, the
shares opened at nearly a fifty per cent premium to the offering price and
closed in the same range. At today's price of approximately $29.00
per share, the company is valued at close to $900 million.
Our secret and maybe patentable Fish-O-Matic stock screening software
brought LAVA to our attention as a possible buy based on relative strength
indicators, so we began the burdensome task of actually reading the
SEC filings for the company. Somewhere around the tenth to twelfth
page of the final Prospectus we caught a whiff of bleach. As our
readers know, this is a solution used by unscrupulous fishmongers to
extend the shelf life of fish that stopped swimming some time ago and who
need a bit of freshening up to gain consumer confidence.
Pro Forma operating numbers published early in the prospectus waved the
first flag. Revenue through September 30, 2001 increased by a respectable
500% compared to the same six months in 2000, albeit off of a low
base. Operating loss, however, declined from $26 million to $18
million, only a 31% reduction, indicating to us that the company is far
from the point where sales increases will translate into ultimate
profitability.
Furthermore, Magma seems to be a one-trick seahorse at this
point. Virtually all its sales are of its single "Blast Fusion"
software product, and four customers account for almost half of its
revenue. We have no expertise whatsoever in software evaluation, but
you don't need to be a propeller head to recognize a dangerous business
situation.
In addition, subsequent to September, 2001 Magma made two accounting
changes that could substantially change short term reporting of company
revenues and expenses. Prior to September 2001 the company had sold
its software on a fixed licensing period, recognizing revenue for those
sales over the life of the license. It has since, however, added a
perpetual license option for sales, and proposes to recognize revenue on
the basis of "residual" calculations. The net effect of this change
will be to accelerate the rate of revenue recognition.
On the expense side Magma made changes in their sales commission
payment policy that have just the opposite effect. The previous
practice was to pay sales commissions for the entire life of contract
revenue at the time of close of the sale. Under the new method,
commissions will be paid over time, effectively reducing the recognition
of current expenses.
The net effect of the two changes, at least for several quarters, will
be to artificially inflate earnings as compared to prior periods. And in
the strange world of the NASD IPO market-where reducing losses is as
important as growing earnings-the impact on investor evaluation of this
stock could be significant. In the long run it will wash, but
further reading of the Magma prospectus indicates to us that this may not
be about the long run.
LAVA owes a lot of VCs a lot of money. Judging by its multiple
convertible preferred stock series, management has been back to the well
more than once, and more than twice, and more than three times. And
in July and August of 2001 the company obligated itself to a $25 million
dollar subordinated convertible promissory note with a conversion price of
$8.71. That conversion discount was scheduled to increase (we expect
substantially) if the IPO was not completed by December, and to increase
again if it was not completed by February, 2002.
A note of that size-almost half of the total operating expense for
FY00-01 indicates a company more in need of life support than one ready
for an IPO. And for those of you not familiar with VC speak, the
escalating conversion discount translates roughly as "get us out of here,
or you lose your company."
But complete the IPO they did, with the help of CSFB and Robertson
Stevens who pocketed 7% of the proceeds for their advice, counsel, and
underwriting assurances. If you bought it and held, you are sitting on a
tidy profit.
How long you may want to sit is another matter. As in the good
old dot com days, the IPO float is a thin sliver-15% or so- of the total
issued shares, and a minor fraction of the 200 million authorized
shares. Twenty four million shares are currently in a 180 day
lock-up expiring in April-although CS can grant early exceptions to the
lock-up at its discretion. While some of the share overhang will be
subject to volume restrictions on sales because it is held by management,
15 million shares are held by shareholders who can demand direct or
piggy-back registration of those shares for sale and dispose of them at
their discretion. That kind of share overhang on a stock with shaky
financials, one product, and a limited customer base is not a bullish
sign.
We fed the prospectus data into the Fish-O-Matic
software for final analysis, and it produced an unsavory, but not
poisonous, rating of Two Tainted Trout. This company may
have a bright future-the December quarterly results will be telling- but
it looks more to us like a VC exit strategy than it does the first stages
of corporate growth, diversification, and profitability. And that
stinks.
DEAD FISH welcomes
comments, criticisms, and most of all, nominations for your favorite
"stinky stock".
To contact Mr. Church, please send an
e-mail to the following address:
Stinkydeadfish@yahoo.com
What is That Smell
?
10:00 PM
November 28, 2001
By:
Robert Church, LSR Staff Writer
On Monday, our DEAD FISH column
profiled Vital Living Products, Inc.(OTCBB: VLPI) a
Matthews North Carolina company that has recently unleashed a publicity
barrage about its "Home Anthrax Test" kit. Based on its overblown claims,
a dubious market for the product, massive share dilution, and highly
questionable trading patterns in the product, we awarded it a Fish-O-Matic
rating of Five Fetid Flounders.
Tuesday, the company released an anticipated report of the
results of independent "FDA registered" laboratory testing of the PurTest
Home Anthrax Test Kit. The release claimed that their contracted
laboratory Sani-Pure had evaluated the test and that it reliably detected
Anthrax. The release further claimed that the test had a false positive
rate-the percentage of tests showing Anthrax when none was present-of five
per cent.
The report set off a brief feeding frenzy on the BB, with
the stock soaring from $.40 to $ .75 before falling back to close at $.66
on volume of almost three million shares. We took the predictable beating
on our rating.
What a difference a day makes. Today, David Evans of
Bloomberg News is reporting that Sani-Pure Laboratories has
received an SEC subpoena for the test results. Evans also reports that
Sani-Pure officials have denied that the laboratory used Anthrax spores in
the test, and said they used another bacillus bacteria for the 64
kits tested. Sani-Pure officials are quoted by Bloomberg as denying that
they had certified the kit.
How odd. In the LSR interview with VLPI CEO Podrebarac
last week, we specifically asked him if the test had detected Anthrax, and
he emphatically claimed that they had "in 100% of the cases." He further
claimed that his microbiologist had to adjust the sensitivity of the test
because it could theoretically "detect a single spore." He in fact
emphasized the point more than once in the interview, when pointing out
that only an FDA registered laboratory would have had access to Anthrax
spores for testing. In the Evans article, Podrebarac claims not to have
read the section of the Sani-Pure report regarding the actual Bacillus
used in the testing.
Our Mr. Podrebarac seems to have a chronic problem
misunderstanding communications with others. He mistakenly heard Ace
Hardware and Meijer tell him that they would carry the Anthrax test in
their retail outlets. And now, it appears he seems to have misunderstood
his contracted laboratory about testing actual Anthrax spores, and has
seemingly authorized yet another press release that may be at variance
with the facts. Perhaps he has been distracted due to numerous phone calls
he may have received from financiers trying to sell those fifteen million
newly registered and deeply discounted shares.
Our proprietary and ever so secret Fish-O-Matic stock
rating system received the updated data from the past two days. Things
got worse for VLPI, and it now is rated at an almost off the scale
Ten Putrid Pollack!
Who knows what will happen in the market. On the
facts, however, this dead fish is only worth its weight in fertilizer. And
maybe for once the SEC will act quickly.
DEAD FISH welcomes
comments, criticisms, and most of all, nominations for your favorite
"stinky stock".
To contact Mr. Church, please send an
e-mail to the following address:
Stinkydeadfish@yahoo.com
Vital Living Products, Inc.
(OTCBB: VLPI)
Current Price: .40
November 26,
2001
By: Robert Church, LSR Staff
Writer
There are three certainties in this uncertain world.
Death, taxes, and the immediate emergence of OTC-BB stocks touting a
solution to the crisis de jour. The pattern never varies.
Breathless product claims are made in a barrage of paid releases. Stock
promoters are hired by the score to "profile" the company. New faces
appear on the stock message boards. Volume soars.
Within days of the Anthrax infections in Florida and
Washington, the BB was awash with companies pushing "organic" cures,
disinfectant solutions, air filtration systems, and, the subject of
today's Dead Fish column, home anthrax test kits.
Vital Living Products, Inc. (OTCBB:
VLPI) is a Matthews, NC seller of water testing
kits designed to allow homeowners to test their drinking water for
coliform bacterial infection, lead, and other contaminants. The company
also has a local business of distributing and maintaining water vending
machines.
As of its most recent 10-Q, VLPI was a company in deep
trouble. At the end of the September 30, 2001 quarter the company reported
cash on hand of $1256.00, total current assets of $484,000, and total
current liabilities of $1,900,000. Between June 30, 2001 and November 6,
2001 its outstanding share count jumped from 4 million to over 16 million
shares via conversion of some unusually toxic "bottomless" debentures. The
company has since filed a SB-2 registering an additional 15 million common
shares resulting from deeply discounted private placements and additional
convertible debentures, a pace and level of dilution unusual even on the
BB.
The company's price and trading reflected its
financial condition. The share price languished at a five cents, and total
daily volume was less than 10 thousand shares.
Until October 8, 2001 that is. On that day trading
volume leapt to 176,000 shares. In the next four days almost 9 million
shares of this previously moribund stock changed hands. The stock closed
on October 12 at an eye-popping $.50 per share. The company made no public
statements during this period, but the previously inactive Raging
Bull message board was suddenly awash in posters. The first
Anthrax related post appeared on October 9. Rumors of Anthrax filters and
tests continued throughout the week.
On October 15 the company dropped the bomb. In a
vaguely worded Business Wire release CEO Donald Podrebarac announced that
the company was working on a test to "detect bioterrorism" and promised a
press conference and demonstration on October 23 in New York. On the 16th
Podrebarac announced that the test was indeed Anthrax specific and that
the company would begin shipping "before Thanksgiving". On the 10/22 the
company announced that Ace Hardware would carry the test in stores
nation-wide and on 10/25 announced that Meijer, Inc would sell the home
Anthrax test in its 152 mid-western pharmacies. The company also announced
a "private placement" of 10.5 million shares that raised $750,000 needed
to "complete development and bring the test to market". This was not a bad
deal for the private placement guys at seven pennies a share. During that
same period over 50 million shares changed hands and the share price
exceeded two dollars on two trading days.
Our sensitive nose detected the aroma of a day-old
sushi outlet. How had a deeply obscure water test company managed to
develop, validate and secure retail distribution agreements for an Anthrax
specific home test in a matter of weeks? How could they manufacture and
ship this product in volume by Thanksgiving? The short answer is-it
hadn't, and they couldn't. Spokespersons for Ace Hardware and Meijer
promptly denied that they had agreed to carry the VLPI tests. Skeptics
pointed out that it would be somewhat difficult to develop an Anthrax test
without access to Anthrax. And the company announced that it planned
"independent laboratory" validation of the test's
effectiveness.
To add to the confusion, Podrebarac stated in an
interview that the test-which supposedly gives results in two days-was not
intended to be used to test suspicious powders or suspected contaminated
surfaces and that the test would not be 100 per cent accurate, missing the
presence of Anthrax in some cases and giving false positive results in
some cases. His off-hand claim of "95% accuracy" seems more than fishy for
an untested product.
What exactly would one do with the test, then? Tests
require a sample to test. Since no one in their right mind would test
suspicious objects and wait two days for the result, the test must be
intended for use when no Anthrax is suspected. Daily mail screening at $25
a test seems impractical. Swabbing down your entire house, your pet cat,
and your children on a regular basis seems likely to create family
discord. Perhaps the test would appeal to a small population of deeply
paranoid individuals. Howard Hughes comes to mind, but it is reported that
he remains dead. And if the test gives false readings as much as 5 per
cent of the time, its widespread use would inundate authorities with panic
calls. Trial lawyers have no doubt been praying to the Gods that the test
hits the market, sensing a bigger liability windfall than asbestos.
What a difference reality makes. Questions like those
above and the very public announcement by the SEC and FTC that they were
closely monitoring all Anthrax related product claims have let to the
predictable collapse in share price and volume and a suddenly quiet
company. However, at a closing price of $.42 on volume of 269,000 shares
on 11/21 the stock remains far above its historic averages. The 15 million
newly registered shares loom like a dark cloud on the horizon. And the
leftover turkey in the fridge indicates that Thanksgiving has come and
gone.
The BB is nothing if not Byzantine. On 11/19 a poster
on the Raging Bull VLPI message boards began claiming at 1:00PM
that the usual "big news" was forthcoming. At 4:00 P.M. the poster
published what he claimed was a news report attributed to "Metronewssource
News in Charlotte, NC. The poorly written report is reproduced in full
below:
Officials with a Mathews based company say preliminary
independent tests of the company's anthrax home testing kit have passed
tests to detect anthrax in all tested samples. The launch of the test kit
comes right on the heels of false rumors of a state attorney general's
office investigation. The company said they will begin shipping the
product to retailers this week
LSR called the company directly to confirm that this
was, as we believed, a false report. CEO Podrebarac, however, stated that
he had talked to a "Bureau Chief" at Metro Networks in Charlotte,and that
preliminary tests had proved the test could detect anthrax. Although
Podrebarac declined to identify the FDA registered lab conducting the
tests, he claimed additional testing would be completed and the product
could be shipped "by Monday" although they "could" ship the product "this
week" Metro Networks has not yet responded to an e-mail requesting
information.
This fish stinks on ice. One thousand per cent
dilution in five months. Highly irregular trading patterns leading up to a
barrage of company releases that are at best misleading and in some cases
totally false. Toxic convertible debentures and seven penny "private
placements". A blockbuster product that makes no sense whatsoever other
than as an attempt to capitalize on the public's Anthrax hysteria. A
company that was briefly a major profit center for Business Wire
suddenly sharing critical company information with a news outfit whose web
site lists a 1999 story as "Breaking News. Please pass the gas
mask.
We don't give investment advice in this column.
However, millions of dollars worth of shares of this stock changed hands
during its trading frenzy. In our opinion not much of it stuck to the
hands of the retail BB investors.
Our secret, but highly accurate Fish-O-Matic
rater gives this Dead Fish a rating of: Five Fetid
Flounders. Perhaps the aroma will reach the anglers at the
SEC.
To contact Mr. Church, please write to him
at:
Stinkydeadfish@yahoo.com
DEAD FISH welcomes comments,
criticisms, and most of all nominations for your favorite "stinky
stock".
