Stocklemon Updates Medifast (AMEX:MED) – (NYSE:MED)
| stock ticker: MED | ||
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We have to give credit where credit is due.
On June 22, 2006, Stocklemon put out a report on Medifast while the stock was trading at $21.00. In the past two months the stock has been cut in half. Stocklemon believes that the stock has overreacted to recent earnings and might be one company that is going to become lemonade to investors who invest at low prices.
First and foremost we have to commend MED on being the first company we have seen that has risen the ranks from OTC to Amex, to NYSE, as they ring the bell of the NYSE on Friday morning.
Stocklemon Updates on Interoil
| stock ticker: IOC | ||
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Interoil (AMEX:IOC), Look Who Is Behind The Curtain
Once upon a time, Interoil was a “David and Goliath” refinery story. Its claim to fame was salvaging and packing up an unused Alaskan refinery in a deal even Enron didn’t want, and shipping the whole thing thousands of miles to set up shop in Papua New Guinea (PNG).
Years later, its claim to fame has become“Natural Gas”.
Lets turn our attention from the sideshow to the deeper question: Can this stock, which currently carries a market capitalization of $400 million plus hundreds of million in debt, be saved by a gas find in Papua New Guinea, (assuming for the moment that it has one)?
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Stocklemon Reports on Interoil
| stock ticker: IOC | ||
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Interoil (Amex:IOC) … on its way to single digits … it’s a matter of time.
They are running out of money, have no CFO, carry a going concern from their auditor, have just lost $15 mil in the last quarter, and operate their business in a country in a State of Emergency……but besides that everything is perfect! Just ask Raymond James !
Interoil is in trouble. The recent Q carries more warnings than a carton of cigarettes. The CFO has resigned and the CEO is taking over his role, even though he has no formal accounting training whatsoever.
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Stocklemon Updates on Home Solutions of America
| stock ticker: HSOA | ||
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Home Solutions of America (HSOA)…is this déjà vu all over again?
On June 6, 2006 Stocklemon reported on Home Solutions of America (NASDAQ:HSOA, formerly AMEX:HOM) . /index.php/2006/06/06
In the story we noted that insiders sold millions of dollars in stock at very high prices – on the heels of a highly misleading press release, in which the company trumpeted a “contract in New Orleans” to sell mobile homes. Turned out the counterparty to the contract was a company that Home Solutions itself had just established and funded, a fact that Home Solutions conveniently failed to disclose. The shareholder lawsuits predictably followed.
Is history about to repeat itself?
In the late afternoon of August 14, Home Solutions filed an S-3 registration for insiders to sell over 5 million shares of stock. Just two hours later, the company released a quarterly report that seemed decent at first glance, until you take a deeper look.
Check This Out!!
If you read closely in the filing you will see this paragraph on page 21.
“The Company also generated revenues from one of its major restoration customers for services, including standby and mobilization of its labor force, to be used on specific projects as specified in its master services agreement with the customer. The agreements allow for billings up to $40,000 (40 million) for specified services, which are estimated to be complete during 2006.”
http://www.sec.gov/Archives/edgar/data/855424/000100329706000346/hom10q1.htm
HOLD ON!! It appears as if Home Solutions is booking revenue for work that has not even been performed, notice the phrase “to be used…”
This is furthered on the following page when we get a clearer understanding of why Home Solutions showed such great operating margins. As stated in the filings:
“HSR of Louisiana generated higher margin fees associated with contracts to commit a portion of its labor force with its major recovery/restoration customer”
Again we see the words “to commit”, thereby in the future. That explains the high margins. It is easy to have high margins when you book work that you haven’t performed.
BUT WAIT IT GETS MUCH BETTER
The company who they are booking this revenue with is C&B Services, which itself has been merged into an OTC BB company named Charys (OTCBB:CHYS). This is the $40 million customer who allows HSOA such terrific margins. Here is a look at the pedigree of the directors of Charys (parent to C&B Services):
The CEO of CHYS is Bill V Ray Jr. Mr. Ray was the CEO of now bankrupt Able Telecom that was investigated by the SEC for accounting irregularities. http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/12-01-1999/0001086911&EDATE=
Able was best described by Manny Asensio in this series of articles
Morgan Ralph Delucia, who was investor relations for Able Telecom, is now investor relations for Charys.
Alec McCarty was a former director of Able Telecom is now a director for Charys.
The head of the audit committee for CHYS is Richard Mangiarelli, who was also the CEO of two publicly traded companies :
GBRC- now trading .011
http://finance.yahoo.com/q?s=GBRC.OB
CBCL- now trading .0043
http://finance.yahoo.com/q?s=CBCL.OB
Stocklemon would like to cross reference the HSOA to the CHYS filing but unfortunately, CHYS has submitted a late notice for their 10K.
http://www.sec.gov/Archives/edgar/data/845879/000114036106010718/0001140361-06-010718.txt
So this is the company HSOA is dependent upon for 25% of its annual revenue, most of which is anticipated to be undertaken in the second half of the year. Stocklemon has serious doubt that HSOA will ever generate $40 million worth of real business from CHYS. Furthermore, the status of the work that was recorded as revenue needs greater clarification, as it appears that the company has booked revenue for work not performed.
OK Stocklemon stop being such a skeptic and lets assume the numbers are real … Sorry, bad news still.
Home Solutions is a rollup. Nearly all of its growth is due to acquisitions for debt and/or stock. With rollups, you have to be extra careful with the numbers. Since rollups intentionally grow fast through acquisitions, “Record Revenues” and “Record Earnings” alone do not provide a basis for record share prices. The key factor is dilution. A rollup will always show “Record Revenues and “Record Earnings” … at least for a while. But to justify higher share prices, those revenues and profits have to justify the dilution. The only way to do that is through gaining large-scale efficiencies and synergies – enough to offset the capital cost of the acquisitions – and then some.
Consider the following data, comparing the first six reporting months of Home Solutions for the last four years:
HSOA Revenues and Earnings Ratios First Six Months compared:
| Six months ending: |
Jun-03 |
Jun-04 |
Jun-05 |
Jun-06 |
| Revenues |
6,982,000 |
14,082,000 |
25,370,000 |
43,433,000 |
| Shares Outstanding * |
11,340,000 |
16,900,000 |
22,400,000 |
40,594,000 |
| Share Expansion, yr over yr * |
49.03% |
32.54% |
81.22% |
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| Share price as of report date |
2.40 |
1.25 |
2.25 |
6.90 |
| Market Cap as of Report Date |
$ 27,216,000 |
$ 21,125,000 |
$ 50,400,000 |
$ 280,098,600 |
| P/S for trailing 6 months (annualized) |
1.95 |
0.75 |
0.99 |
3.22 |
| Revs per $ invested (annualized) |
0.5131 |
1.3332 |
1.0067 |
0.3101 |
| Fully Diluted EPS for 6 mos (continuing ops) |
-0.01 |
0.04 |
0.08 |
0.15 |
| PE for trailing six months (annualized) |
n/a |
15.63 |
14.06 |
23.00 |
*Note- This does not include the additional 4 million shares just registered for the Fireline Acquisition –without an increase in revenue guidance.
Conclusions: Because of the massive share count growth (especially in the last 12 months), investors are now buying only 31c revenue per dollar invested, the lowest level in the four years studied.
Put another way, the Price per Sales ratio is the highest ever; investors are paying 3.22 for each dollar of annualized gross revenue.
With regard to earnings, the EPS is now 23, also nearly double historical levels.
Justifying these numbers demands high quality of both revenues and earnings, however, Home Solutions shows neither. Clearly, the investment premise on revenue and profits has a long way to go, just to catch up to 2004.
In this case, Stocklemon has serious questions about both gross revenues and gross margins. A company that just lowered investors’ confidence by issuing a grossly misleading Press Release demands a bit of extra caution. Given management’s track record, investors might think twice before taking management’s projections at face value.
Guidance
In our first report, Stocklemon questioned how this company can ever meet their target of $160 million in revenue for the year. Sad for investors that the company never seems to break it out, but we do know two things.
HSOA has booked $43 mil in rev for the first half of 2006. How is the company going to generate $120 mil for the next 6 months?? Anyone ?
1. $40 million is supposed to come from Charys.
2. HSOA aquired Fireline, who supposedly did $20 mil in revenue for the first half of the year, yet HSOA never raised guidance to adjust to the acquisition. Are they losing $20 mil in other places???
When asked on the conference call, the company stated that they did not want to include Fireline until an audit was completed. Heck, shareholders have not even seen an 8-K detailing this acquisition. Yet, it didn’t stop Brian Marshall, president of Fireline, from getting 4 million shares of stock registered today.
Conclusion
Stocklemon believes that Home Solutions is a house of cards that is making promises that it cannot deliver on. There are too many question marks and holes in their business to book huge multiples of future projections. We encourage all investors to do their own homework on the stock and understand that investing is not a game of headlines — but rather an exercise in understanding the fine print.
Cautious investing to all.
Stocklemon Updates Conversion Solutions/ Fronthaul Group (OTC: CSHD)
| stock ticker: CSHD | ||
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NEW SYMBOL - SAME SCAM SAME FRAUD.
Stocklemon is amazed at the naiveté of many investors as they blindly buy a stock based on the word of a CEO who has consistently lied to shareholders and to the investment community in what Stocklemon believes to be the most flagrant abuse of the markets we have seen to date. Please read the Stocklemon archives for the first two reports on Fronthaul.
Stocklemon Updates Fronthaul Group/Conversion Solutions (OTCBB:FHAL)
| stock ticker: FHAL | ||
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Fronthaul Group/Conversion Solutions (OTCBB:FHAL) CEO Rufus Harris is a liar and has been lying to shareholders. This is FRAUD FRAUD FRAUD.
**This story is an update to an earlier story
As the days go on, FHAL CEO Rufus Harris lies become progressively more grandiose and more bold. Unfortunately for Rufus, the lies of today will become the evidence of tomorrow. On July 27, Rufus gave another impromptu conference call (a sweeping Reg FD violation, by the way) to his chosen minions. A recording of the call can be heard on :