Editors' Note: This article covers a stock trading at less
than $1 per share and/or with less than a $100 million market
cap. Please be aware of the risks associated with these
From time to time, certain stocks reach abnormally high
valuations with no fundamental value. The following three short
candidates are newcomers to my Seeking Alpha short articles, have
enterprise values of over $150M, generate zero or nominal revenues,
lose a lot of money, and have broken business models.
Fundamentally, they should go to zero.
|Poly Shield Tech.
*for companies without revenues, we use a default EV/Revs of
All of these stocks had hyperbolic price increases in recent
months that are now topping out - AZRH (64x price jump from a low
of $0.02 to $1.27 currently), GAWK (8x from a low of $1), and SHPR
(4x from a low of $0.22). The timing is right to short these
was attempting to sell used cars in Russia until a few weeks ago.
The company's business plan
is advertising services that use audio watermarking technology to
transmit advertising content to mobile devices. But a picture of
the company's headquarters says a thousand words.
(click to enlarge)
I give the company some credit; it upgraded its description from
selling used cars to mobile advertising with audio watermark
technology. But these are just words with nothing behind it. This
is just a one-person show (as Paul Martin has replaced Olga
Chernetckaia as the sole employee), and it appears that nobody is
home. Not only is AZRH not worth $155M, it's not worth $1M. Please
refer to this
recent Azure Holdings article
for more information.
takes the cake for overvaluation, sporting a current market cap of
$2.4 billion! The company's latest business plan since August 2013
is online distribution of digital content via its supposedly
proprietary content distribution network. So far, the company has
reported zero revenues from this new business plan.
I visited Gawk's web site today, and was not impressed. The
content is sparse and from no-name, aspiring musicians and
producers. Specifically, 2 music videos for 99 cents, 1 short film
for 99 cents, and 10 video clips for free. Movies and a few other
categories are empty. Everyone in the developed world would have to
download paid content from this site to justify the current
To be fair, the three managers recruited over the last few
months are not slouches. But despite their Hollywood connections
and past accolades, the site is currently lacking high-profile
content to attract consumers. Even if Gawk entices consumers in the
future to pay for its content, it will never be enough to justify
anything close to the current valuation.
*last-quarter's annualized revs & EBITDA were $0 and -$0.5M,
For every one Netflix, there are a multitude of money-losing
followers in its wake. The B2C model is fraught with extremely high
marketing costs. Gawk will have to raise (and initially lose) tons
of money (translating into deeply discounted stock offerings and
share dilution, if it's lucky) just to be at the table. The peer
group above adds further justification to the low valuations and
penny stock prices that Gawk will likely be encountering.
Poly Shield Technologies
has a lot of moving parts, but the bottom line is that the company
is literally going into the tank. The company unsuccessfully
dabbled in a number of businesses over the last year or two ranging
from wireless tracking equipment to water purification to
fluoropolymer coatings to various emission reduction schemes for
the marine industry. These endeavors generated ongoing revenues of
only $5k in 2012 and $76k through September 2013 (which excludes a
one-time royalty payment of $272k in 2013 Q3 from a discontinued
business). Quarterly losses remained around -$0.3M in 2013 Q3
despite the one-time incoming payment, as SG&A expenses
The company's primary focus today is its DSOX-15 product that
decreases the amount of sulfur in fuel used by ships. The DSOX-15
is supported by three new management members that joined Poly
Shield in September 2013. Rasmus Norling, the previous head of the
company with 154M restricted shares (82% of total shares), is
currently floundering to sell his Bio Scrubber that removes alkali
metals from fuel.
Poly Shield has high-interest/dilutive loans that it cannot
afford to pay of $0.3M at 51% per annum, $0.6M in various other
loans, and a loan last month for $0.5M up-front with $1.5M to
follow at 10% per annum with 6.2M shares in cashless warrants. The
$1.5M is subject to the company cancelling Rasmus Norling's shares
and acquiring his patents. Thus, a power struggle is now in play
between Mr. Norling and new management backed by the recent lender
(KF Business Ventures LP).
The false hope of Poly Shield being resurrected by this
tentative loan and hopefully cancelling all or part of Mr.
Norling's shares and somehow acquiring his IP, as well as probable
stock promotion activity funded by the small Q3 windfall, are the
only reasons that I can find to explain the 4x rise in SHPR stock
over the last nine months.
There are at least three main reasons why this is false hope:
First, operationally, the DSOX-15 has only one customer, and this
is a capital-intensive business that the company cannot afford to
support. Thus, the prospect for future revenues is cloudy at best.
Even in the unlikely scenario that Poly Shield generates
above-nominal revenues, after failing to break the $200k-mark for
the last 13 years, the money will be used to cover indebtedness,
and to now cover its out-of-whack SG&A costs. So Poly Shield is
going into the tank.
Second, new management has credibility issues. Brad Eckenweiler
(current CEO) spent the last ten years as CEO of Midas Trade, an
OTCBB stock trading firm. Not only does Mr. Eckenweiler have no
operational experience, but in the past he was
fined and banned for two years by the British
Columbia Securities Commission
for dubious payments and promotional activity. Simultaneous to Mr.
Eckenweiler's CEO announcement in September 2013, he received $195k
from the company for previous travel, marketing and other business
expenses. Neither Mr. Eckenweiler nor his two manager colleagues
have released their stock compensation arrangements yet. It will be
interesting to see what the total net share count/ownership stakes
will be, especially in the rosy scenario that most of Mr. Norling's
shares are cancelled.
Third, the company would have to sell $150M in DSOX-15 systems
to justify the current valuation of $176M (excluding KF Business
Ventures warrants and debt). So far, DSOX-15 sales are a nominal
$60k. Even in the rosy scenario that the share count is reduced to
a 40M base plus new management shares and future dilution to avoid
bankruptcy and maintain operations, the company would still need at
least $50M in sales to justify that valuation, a far cry from
This creates today's shorting opportunity of SHPR with an EV of
$176M despite dire financials of ongoing LTM revenues of only $76k,
last-twelve months' losses of -$1.3M with more red-ink to come,
while facing debt obligations that currently cannot be repaid. Poly
Shield is a worthless folly in my view, where aside from insiders,
very few shareholders will make any money.
I am short AZRH, GAWK, 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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