Description
I believe Imaging3 is a tremendous short opportunity. Quite simply, I believe the Company's stock is worthless and management is engaging in a highly aggressive and dubious campaign to massively inflate their stock price. I will keep this write-up brief as I believe this idea is timely. Additionally, borrow is very tight, so this idea might not be for everyone.
DISCLAIMER: We currently hold a short position in this security. We may change our position at anytime without posting an update. The views expressed here are merely the opinion of the author. Please do your own research.
Three months ago, Imaging3 traded at $0.03 per share. The Company had 247 million shares outstanding placing the market cap at around $7.4 million, a reasonable level for this tiny operation with no history of ever generating a profit. However, several months ago, the Company began talking up its 3D imaging scanner on a paid-stock promotion program called MoneyTV (which is run by a charged fraudster - see Alliance Industries back in 1996). The program is quite frankly ridiculous and appeals to the naïve retail investor hoping to find his or her lottery ticket in the stock market. CEO Dean Janes has practically been promising investors that his 3D scanning device will imminently receive FDA approval (a claim he has been making for years). On a recent conference call on the matter, he told investors that approval was "not a matter of if, but when". Additionally on the conference call, when the Company's counsel implored Dean Janes to read the Safe Harbor statement, he blew him off and failed to read it. In a press release related to that same call, the Company stated "due to extraordinarily high call volume, the capacity limits of the call were exceeded" - which I view as an irrelevant fact directed toward drumming up a herd-type interest in the Company.
After a hype-induced run up in the stock to around $0.70 ($173 million market cap), the Company sold 120 million shares in a private offering for $3 million in proceeds. That's correct - they sold shares at less than $0.03 when the stock was trading at $0.70. How did investors react to the news of this massively dilutive offering? Well, the stock has doubled again and is now trading at around $1.50 per share representing a market cap of $560 million. The CEO responded to concerns on dilution by posting a message on a blog stating that "Google has over 300 million shares outstanding," he added, "and it doesn't seem to affect their PPS (price per share)."
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=42430090
Furthermore, the stock has been frequently promoted in recent weeks in paid-research publications such as StockPreacher.com and Emerging Stock Report.
What do we know about Imaging3 other than an outrageously aggressive and promotional CEO?
- The Company is a tiny reseller of imaging devices, tables and protective gear
- The Company only has 9 employees
- The Company has $150k in cash, even after the offering
- PP&E is only $17k!
- The Company has current liabilities of $2.9 million
- The Company generates less than $1mm in annual gross profit and burns over $1mm per year of cash
- In a footnote in the September 30, 2009 10Q, the Company states it overpaid the CEO for previous borrowings as the "amount remitted was inadvertently calculated to be in excess of the amount actually owed by the Company to its CEO". How such an error can happen is beyond me, particularly when it is one of the largest items on the balance sheet. But, it clearly sheds some light on the quality of this organization.
- The Company's website says they "house over 10 million dollars of parts in our warehouse to support the systems we sell and service". This seems like a lie, as their inventory balance is around $300k.
http://www.imaging3.net/store/util/about_us?Args=
Basically, I think this is a shameless stock promotion that will soon find its way back to $0.03 or lower. In my opinion, it is not a matter of if, but when.
Catalyst
End of the hype / reality sets in