Goode Trades

Perhaps the most incredible thing ever — a supposed reverse merger six months in the past was not correctly consummated and now the public company is left with no assets or sales. Unsurprisingly, this involves a Chinese company trading on the horrible OTC BB:

From the China OTC Blog:

“Contrary to what we have been thinking for the last half a year, Bejing Logistics (BJGL.OB) has never had control over its Chinese subsidiary Baolong, described as China’s largest third-party logistics providers, specializing in books & magazines, agricultural products and Chinese traditional medicine storage and shipping. For today’s shocking announcement relays the fact that the merger between BJGL and Baolong was “never consummated pursuant to Chinese law” and thus null and void. If this is true, it means that BJGL has no assets, revenues, or any operations in China. This is a major blow.”

I read the China OTC Blog for fun. I would not recommend actually buying any such companies — while they may appear cheap, the risk of fraud is too great.

Disclosure: I have no position in BJGLE.O.

Today I asked SeekingAlpha to remove me as a contributor and to take down all my articles that they currently syndicate on their website. I am tired of getting flack from dumb people who believe it is wrong to criticize a company. I do not make any money from blogging (my advertisements don’t even cover my hosting costs), so I would rather be read by just a few people who appreciate my opinion than by a large bunch of morons who hate to see their companies criticized.

I am not a professional analyst who is trying to give a balanced view of a company he covers. I am a cynic who tries to point out the negatives in stocks where everyone only sees the positives.

Who’s Your Daddy Inc. investors may be thinking that the company’s name is a taunt to them considering that its stock price has fallen over 95% in the past year (graph at Google Finance). The maker of King of Energy™ energy drinks now has a market capitalization of under $2 million and its stock price is at $0.17. Who’s Your Daddy has a stockholder’s deficit of $3.8 million (that’s a negative book value, folks) and a loss of $335,000 on sales of $103,000 in the most recent quarter. The company has under $2,000 in cash and $61,000 in accounts receivable. Unless the company receives a cash infusion quickly it will likely go bankrupt.

Our auditor has raised substantial doubt about our ability to continue our business. We need to obtain sufficient liquidity to continue as a going concern if our business is to achieve profitability. [quote taken from 10k]

(click image for full-sized stock chart)

Who’s Your Daddy 2007 10k
Who’s Your Daddy 10Q for period ending March 31, 2008

Disclosure: I have no position in any company mentioned above, long or short. I have a disclosure policy.

Over the last five days, the stock of Global Roaming and Distribution (OTC BB: GRDB) has dropped 70% on no news. To those familiar with pumped penny stocks, this is unsurprising. The pump and dump scheme is quite simple: a company or a large shareholder pays a publisher to print amazingly optimistic advertisements for the company that are sent out to hundreds of thousands if not millions of investors via mail, email, and fax. The information published about the company is either absurdly optimistic or downright false. The SEC never gets involved unless the statements are verifiably false, so the publishers usually stick to insanely optimistic predictions (which are protected speech, no matter how absurd). While the stock soars, shareholders of the company sell their positions at inflated profits.

As usual with pumped up penny stocks, GRDB is way overvalued, even after its recent 70% stock price decline. With 164.7 million shares outstanding as of the filing date of its most recent 10Q, Global Roaming has a $211 million market cap. What do investors get for their $211 million? They get a book value of $3.1 million, no revenues, and a loss of $78,000 in the most recent quarter. Global Roaming has such a small chance of ever selling its product or earning a profit that it is pointless for me to criticize it in any more detail.

In return for publishing the tout sheet, Eric Dany’s Stock Prospector received $32,500 from ILDM Incorporated, which was itself paid with 3.34 million shares of GRDB stock for publicizing the company.

For more information

GRDB on Motley Fool CAPS (verdict: everyone hates the stock)
GRDB March 2008 10Q
Front Page of 15-page tout sheet, Eric Dany’s Stock Prospector
Disclaimer of Eric Dany’s Stock Prospector

Disclosure: I have no position in any company mentioned above, long or short. I have a disclosure policy.

Those of you who read this blog probably know about Andrew Left. He is a well-known short seller of penny stocks who has successfully identified multiple frauds. I admire his thorough research although I do not always approve of the inflammatory language he uses (and I certainly do not approve of the garish design of his website).

To those who criticize him and bash short sellers in general, I would like to point out that the SEC today brought a case against Global Development and Environmental Resources, a company that Left accused of fraud three years ago. (See the press release and the full complaint). The company’s stock price climbed rapidly early in 2005 as a result of several positive press releases it put out. At the time the company had no audited financial statements and was trading on the Pink Sheets. Besides revealing the shady backrounds of multiple executives involved in the company, Left also criticized press releases that the company had put out, saying:

“Stocklemon has not been able to independently confirm even one of these to be true. More importantly, Stocklemon spoke to Robert Sullivan – Senior Vice President of Investor Relations and Capital Markets from Land America and he is not aware of any contract with Global Environmental and never authorized the release above.” [emphasis in original]

Evidently the SEC has come to agree with Left, stating the following in its press release:

“The complaint further alleges that the defendants then engaged in a “pump-and-dump” scheme by arranging for Global to issue numerous press releases that contained false and misleading information relating to Global’s purported clients, pending contracts and revenue projections. According to the complaint, at least one entity defendant Mrakuzic controlled sold illegally issued Global shares into an artificially inflated market generating profits of approximately $1.2 million. In addition, defendant Panella sold illegally issued Global shares for profits of nearly $1.1 million.”

While it is good that the SEC is acting on this matter, it is a little slow. The alleged events took place back in 2005. One thing is certain: investors in Global Development and Environmental Resources have done poorly over the last three years.

For More Information

SEC Press Release
Full SEC Complaint (pdf)
Citron Research article on Global Development and Environmental Resources

Previous Articles about Andrew Left

Home Solutions of America vs. StockLemon
Home Solutions of America vs. StockLemon Part 2
Can You Trust the StockLemon: Part 1
Can You Trust the StockLemon: Part 2
Can You Trust the StockLemon: Part 3
Can You Trust the StockLemon: Part 4
Welcome to the Remote MDX Shorting Party, Andrew Left

Disclosure: I have no position in any company mentioned above, long or short. I have a disclosure policy. I have no connection to or contact with Andrew Left besides reading his blog.

I have previously written about Noble Roman’s (OTC BB: NROM, $1.40) and its growth strategy of selling master franchise agreements (what it calls area developer agreements) and its strategy to sell dual-branded franchises (Noble Roman’s pizza and Toscano’s subs). I can now say that this strategy has utterly failed. To those who read my previous articles this should not be a surprise. I argued that this strategy was doomed to failure back on December 2, 2007 when the stock was priced at $2.48. I later criticized management for blaming franchisees for their failures. More recently, I mocked the company’s effort to hire an investment bank to sell itself, calling the company overvalued.

Noble Roman’s continues to falter. In the most recent quarter, Noble Roman’s did not sell any area developer agreements:

In addition, included in royalties and fees were approximately $360,000 in the three-month period ended March 31, 2007 and none in the three-month period ended March 31, 2008 for the sale of Area
Development Agreements.

Furthermore, initial franchise fees were down significantly:

Approximately $466,000 and $135,500 are included in royalty and fee income for the three- month periods ended March 31, 2007 and 2008, respectively, for initial franchise fees.

In my first article criticizing Noble Roman’s, I argued that if the company’s plans completely collapsed, it would struggle to earn $1 million per year. With 1st quarter earnings of $305,000, down from $662,000 in the year ago quarter (and down from $389,000 in the 4th quarter of last year), the company could quite possibly miss even my pessimistic earnings forecast.

Considering the company’s problems, I do not believe an investment in Noble Roman’s stock or the purchase of a Noble Roman’s or Toscano’s subs franchise would be a prudent decision.

For More Information:

2007 10K
1st Quarter 2008 10Q

Disclosure: I have no position in NROM, long or short. I have a disclosure policy. All quotes above from the 1st quarter 2008 NROM 10Q.